India hopes to spur domestic spending in order to offset the impact of Trump’s import duties
India has cut consumption taxes on most household items in an effort to cushion the economy from US President Donald Trump’s newly-introduced 50% cumulative American tariffs and spur spending ahead of its annual holiday season.
Indian Finance Minister Nirmala Sitharaman announced that the structure of the goods and services tax (GST) had been cut to two rates, 5% and 18%, down from the earlier four.
This included sharp reductions in taxes on food and daily essential items as well as consumer durables like TVs and refrigerators. Certain items like high-end vehicles, carbonated beverages and cigarettes will, however, attract a special 40% rate.
”These reforms have been carried out with a focus on the common man,” Sitharaman said. “Labor intensive industries have been given good support. Farmers and the agriculture sector, as well as the health sector, will benefit.”
Indian Prime Minister Narendra Modi had said in August that the GST would be reformed and taxes lowered in time for Diwali, the festival of lights, which coincides with the South Asian nation’s largest shopping period.
Hon’ble Prime Minister Shri @narendramodi announced the Next-Generation GST Reforms in his Independence Day address from the ramparts of Red Fort.
Working on the same principle, the GST Council has approved significant reforms today.
India's GST was introduced in 2017 with four tax rates: 5%, 12%, 18%, and 28%, and was considered too complicated; for example, pre-packaged salted popcorn and caramel popcorn were taxed differently.
To rectify this, taxes were reduced to 0 on goods such as cottage cheese and Indian breads. A 18% GST on health insurance premiums has been scrapped. The new rates will be effective from September 22.
”India’s recent rationalization of GST rates, driven by uncertainty over US tariffs, offers limited domestic relief but signals the need for long-term trade realignment with partners like China, as negotiations with the US are expected to be prolonged,” Mohan Lavi, a partner at K.P. Rao & Co told RT.
India's economy grew at 7.8% in the quarter ending June 2025.
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