India slashes consumption tax on hundreds of items to spur domestic demand | Reuters
New Delhi, Sept. 4, 2025 — India is slashing taxes on hundreds of everyday consumer products — from air conditioners to small cars — in a move to encourage people to spend more at home and protect its economy from the impact of steep U.S. tariffs.
Finance Minister Nirmala Sitharaman announced on Wednesday that the new tax rates will take effect on September 22, coinciding with the start of the festive season leading up to Diwali.
The changes simplify India’s tax structure. Instead of four tiers (5%, 12%, 18%, and 28%), there will now be just two main rates: 5% and 18%. Most goods will get lower tax rates, making them more affordable for consumers.
However, luxury cars, tobacco, and cigarettes will face a special 40% tax, while essential items like life and health insurance will now be tax-free.
Prime Minister Narendra Modi said the reforms aim to make life easier for ordinary citizens and small businesses, while also boosting local demand.
Why Now?
The move comes after U.S. President Donald Trump raised tariffs on Indian imports by an additional 25% last month, bringing the total duties to 50%. The U.S. is India’s biggest export market, and these tariffs could affect about $48 billion worth of goods, threatening jobs and slowing growth.
To reduce reliance on the U.S., India is actively exploring other markets in Europe, Latin America, Africa, and Southeast Asia. Negotiations with the European Union have gained urgency, and the government is also considering incentives like cheaper loans for exporters.
Despite strong trade growth in recent years, the India–U.S. partnership has hit turbulence, with disputes over oil imports and market access creating new challenges.
Still, India hopes that lower taxes and new trade deals will soften the blow and keep its economy moving forward.
#IndiaEconomy #TaxCuts #USTariffs #ModiReforms #GlobalTrade