Modification of tax rates in India under Prime Minister Modi's reform, resulting in lower tax for shampoos, hybrid automobiles, and televisions.

The Indian government has proposed a significant overhaul of the Goods and Services Tax (GST) system, aiming to boost domestic consumption, help raise farm incomes, and encourage self-reliance among Indian manufacturers. The reform, one of the biggest in nearly a decade, comes amid strained trade ties with the U.S.

The proposed changes include reducing GST on consumer items like talcum powder, toothpaste, and shampoo from 18% to 5%, as well as on essential consumer goods such as packaged foods, medicines, fruits, dairy products, and talcum powder. This reduction also extends to items like shampoos, hybrid cars, consumer electronics, and more, making them more affordable for consumers.

However, the government is maintaining levies on colas and other carbonated drinks, despite calls for tax cuts. The Indian government is also considering raising rates on items like coal and services like betting, casinos, and horse racing.

The proposed tax cuts are expected to lead to a resurgence in the sale of small cars in India, particularly hybrids. The GST on hybrids is proposed to be closer to the 5% GST on electric cars. However, Indian EV makers Tata Motors and Mahindra & Mahindra have expressed fears that reducing the tax on hybrids could derail the country's electrification ambitions.

The reform also benefits the textile sector, one of India's largest exporters, which has been significantly affected by U.S. President Donald Trump's tariff blitz. Air conditioners and television sets may see a reduction in GST from 28% to 18% before the Diwali shopping season in October.

The government has also proposed cutting the tax on motorcycles and scooters with an engine capacity of less than 350cc. Additionally, India plans to cut consumption tax on key export items like fertilisers, farm machinery, and tractors and their parts to 5% from the current 12% or 18%.

The GST council, headed by federal Finance Minister Nirmala Sitharaman, is expected to finalize the list of items for tax cuts in a meeting on September 3-4. The finance ministry did not immediately reply to an email seeking comments on this story. The proposed changes, if approved, are set to take effect from September 22, 2025.

Modification of tax rates in India under Prime Minister Modi's reform, resulting in lower tax for shampoos, hybrid automobiles, and televisions.