India to Cut Taxes on Hundreds of Consumer Goods to Bolster Domestic Demand After U.S. Tariffs
Finance Minister Nirmala Sitharaman says revised two-rate consumption tax will take effect Sept. 22 as New Delhi seeks to cushion the economy from steep U.S. import tariffs
New Delhi — India will cut taxes on hundreds of consumer goods ranging from air conditioners to small cars to bolster local consumption and help cushion the economy from the impact of steep U.S. import tariffs, Finance Minister Nirmala Sitharaman said Wednesday.
Sitharaman told a news conference that the reduced goods and services tax, or consumption tax, has been approved by an all-powerful government panel and will take effect on Sept. 22. The date coincides with the start of a major Hindu festival that precedes the festival of lights, Diwali, in October.
Under the overhaul, the government will simplify the consumption tax structure from four tiers to two, with rates of 5% and 18% replacing the previous 5%, 12%, 18% and 28% bands. The change is aimed at lowering the tax burden on a wide range of household goods and small-ticket durable items to stimulate spending.
The announcement comes after U.S. President Donald Trump last month introduced new tariffs that threaten a portion of India’s outbound shipments to its largest export market, the United States. Indian officials framed the tax cuts as a domestic-demand stimulus to partially offset external headwinds created by the higher U.S. duties.
The government gave few immediate details on which specific items will move to the lower or higher of the two new rates beyond saying the cuts will cover hundreds of consumer goods, including air conditioners and smaller automobiles. The Finance Ministry said the changes were approved by the government panel overseeing the measure and will be implemented on the stated start date.
Analysts said lower consumption taxes typically reduce retail prices and can spur short-term demand, particularly if timed before major festivals when household purchases rise. The government’s choice of Sept. 22 aligns the tax change with an early festival period that often precedes a longer buying season ahead of Diwali.
The move follows broader economic challenges for India’s export and manufacturing sectors related to rising global trade tensions. New Delhi has said it will use a mix of policy tools to support growth, and the tax adjustment is one element intended to shore up domestic consumption while authorities monitor the effects of overseas tariffs on export-oriented firms.
Officials did not immediately provide estimates of the revenue impact of the tax cuts or detailed sector-by-sector mappings of the new rates. Further technical and administrative guidance tied to the change will be issued in the coming days, the Finance Ministry said, as businesses prepare for the new tax structure.
The reduction in consumption tax marks one of the most significant adjustments to India’s tax-tiering since the introduction of the goods and services tax system, and it reflects policymakers’ focus on sustaining household spending amid an uncertain external environment.