Goods and Services Tax Cuts: Relief for Indian consumers

Millions of people across India can start enjoying some relief from daily expenses as the government rolls out major cuts to Goods and Services Tax (GST).

Everyday essentials like milk and bread, to life-saving drugs, and insurance policies are now tax-free! Other common items such as hair oil and shampoo will be taxed at 5% instead of 12–18%. Even small cars and electronic goods like TVs and air conditioners will see reduced GST, from 28% to 18%.

This incredible easing of costs is part of a broader tax overhaul led by Prime Minister Narendra Modi: one aimed at both simplifying India’s complex GST system and boosting household consumption, which makes up over half of GDP.

Why now?

The timing is strategic: as the festive season is kicking off, spending is about to surge on everything from clothes to cars to food and household good. The governments hope is that these tax cuts will not only counter the impact of recent US tariff hikes – which are now 50%! – but also leave consumers with more money in hand, creating more demand and increasing purchasing power across all industries and sectors. 

A perfect time for making bigger purchases

Beyond providing some relief at the checkout for everyday purchases, for consumers, the combination of festival offers and these new tax cuts means it could be a perfect time to get a great deal on bigger purchases that ay not have felt possible before. 

A clear example of this is the auto industry. Since the announcement, auto stocks have jumped 6–17%. Companies like Mahindra & Mahindra and Hero Motocorp report increased showroom visits and growing interest in budget models, especially from first-time buyers. 

Possible pitfalls?

While there will hopefully be big benefits for everyday consumers, and for GDP overall, the transition may not be smooth for everyone.

Many small shopkeepers and local brands may still be unaware of the new rates and will struggle to adjust pricing and packaging on such short notice. As well as needing to print new labels, there is the possibility that it will be difficult for smaller retailers when it comes to negotiating with their suppliers to manage old inventory bought at higher tax rates.

E-commerce is another area where the government will be watching carefully to ensure that there is compliance – and that consumers are actually benefitting from the tax cuts. The Economic Times  reports that “Authorities are monitoring whether these platforms are complying with pricing norms and not withholding the intended consumer benefits from tax reductions.”

The bigger picture?

Despite some teething issues, the overall impact should be positive for consumers. 

However, the tax cuts will come at a cost: a projected $5.4 billion revenue loss this year. This could potentially strain government finances and forcing a slowdown in big infrastructure projects.

Still, for now, consumers can breathe a little easier, with a lighter tax burden and more festive season savings ahead.