India’s government has slashed GST rates on hundreds of everyday items, aiming to stimulate domestic consumption amid ongoing economic reforms.
On Wednesday, 3 September 2025, India’s GST Council, chaired by Finance Minister Nirmala Sitharaman, approved sweeping tax cuts for consumer goods in India, reducing rates on items like soaps, toothpaste, and small cars to spur domestic demand, with changes effective from 22 September 2025, as part of a simplified two-tier structure.
These tax cuts for consumer goods in India could enhance regional trade dynamics in South Asia by boosting manufacturing and consumption, potentially benefiting neighbouring economies like Pakistan and Bangladesh through increased cross-border supply chains.
Details of the Tax Reductions
The 56th GST Council meeting rationalised the tax structure from four tiers to primarily 5% and 18%, with a 40% rate for de-merit goods. Key reductions include shifting items such as hair oil, toilet soap bars, shampoos, toothbrushes, toothpaste, bicycles, tableware, kitchenware, household articles, packaged namkeens, bhujia, sauces, pasta, instant noodles, chocolates, coffee, preserved meat, cornflakes, butter, and ghee from 18% or 12% to 5%. Agricultural goods like tractors and machinery for soil preparation and harvesting, as well as labor-intensive products such as handicrafts, marble blocks, granite blocks, and intermediate leather goods, also see this drop to 5%.
Higher-end consumer items face moderated cuts: air-conditioning machines, televisions up to 32 inches, dishwashing machines, small cars, motorcycles up to 350cc, cement, buses, trucks, ambulances, and all auto parts move from 28% to 18%. Renewable energy devices and medical apparatus like wadding gauze, bandages, diagnostic kits, and glucometers shift to 5%. Exemptions apply to ultra-high temperature (UHT) milk, prepackaged and labelled chena or paneer, Indian breads such as chapati, roti, paratha, and parotta, which drop from 5% to nil. Exercise books, graph books, laboratory notebooks, and notebooks fall from 12% to nil.
In the food sector, condensed milk, butter, ghee, paneer, cheese, malt, starches, pasta, cornflakes, biscuits, cocoa products, almonds, pistachios, hazelnuts, cashews, dates, refined sugar, sugar syrups, toffees, candy, vegetable oils, animal fats, edible spreads, sausages, meat preparations, fish products, and malt extract-based packaged foods move to 5%. Waters, including natural or artificial mineral waters and aerated waters without added sugar, drop from 18% to 5%.
Healthcare sees significant relief: 33 lifesaving drugs and medicines have been reduced from 12% to nil, with three additional drugs for cancer, rare diseases, and severe chronic conditions dropping from 5% to nil. All individual life insurance policies (term life, ULIP, endowment) and health insurance policies (including family floaters and senior citizens) are exempt from GST, along with their reinsurance.
Services also benefit: hotel accommodation up to INR 7,500 per unit per day drops from 12% to 5%, while beauty and physical well-being services like gyms, salons, barbers, and yoga centres move from 18% to 5%. Fertilizers and select agricultural inputs fall from 12% or 18% to 5%, correcting inverted duty structures in manmade textiles and fertilizers.
De-merit goods rise: pan masala, gutkha, cigarettes, unmanufactured tobacco, chewing tobacco like zarda, certain non-alcoholic beverages, carbonated beverages with fruit juice, caffeinated beverages, and products with tobacco or nicotine substitutes shift from 28% to 40%. All goods with added sugar, sweetening matter, or flavouring, including aerated waters, also move to 40%. Bidis drop from 28% to 18%.
Economic Context and Impact
The reforms aim to focus on the common man, labour-intensive industries, farmers, agriculture, health, and key economic drivers. They seek to make insurance affordable, increase coverage, and enhance ease of doing business for small traders. The changes are expected to put more money in consumers’ hands, routing it back into the economy for a significant boost.
India’s economy grew at 7.8% in the quarter ending June 2025, with these measures anticipated to further stimulate consumption. However, they may lead to a revenue loss of INR 480 billion (USD 5.49 billion) for federal and state governments.
The tax cuts coincide with global pressures. They are set to benefit fast-moving consumer goods firms like Hindustan Unilever and Godrej Industries, consumer electronics companies such as Samsung, LG, and Sony, and automakers including Maruti, Toyota, and Suzuki.
Additionally, the Goods and Services Tax Appellate Tribunal (GSTAT) will become operational by the end of September 2025, with hearings starting before December 2025, and a limitation date of 30 June 2026, for backlog appeals.
Background
India’s GST system, introduced in 2017, has undergone periodic reviews to simplify compliance and boost growth. The 56th meeting builds on prior rationalisations, addressing inverted duty structures and consumer affordability amid post-pandemic recovery.
What’s Next
As implementation begins on 22 September 2025, monitoring will be key to assessing how these tax cuts for consumer goods in India affect consumption tax revenues and domestic demand in the coming quarters.
Published in SouthAsianDesk, September 4th, 2025
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