India to cut taxes on hundreds of consumer goods to boost local demand following steep US tariffs

Key Points

• India is set to cut taxes on hundreds of consumer goods, reducing the goods and services tax structure to two rates of 5% and 18%, in response to steep U.S. tariffs.
• The tax reductions, which will take effect on September 22, aim to boost local consumption and diminish the economic impact from the anticipated $48.2 billion worth of Indian exports affected by U.S. tariffs.
• High-end cars, tobacco, and cigarettes will attract a special tax rate of 40%, while life and health insurance purchases will remain tax-exempt.
• India is also pursuing trade negotiations with the European Union and aiming to expand exports to other global markets to lessen its dependency on the U.S.

NEW DELHI (AP) — India will cut taxes on hundreds of consumer goods ranging from air conditioners to small cars to bolster local consumption, its government said Wednesday, as New Delhi moves to cushion its economy from the blow of steep U.S. import tariffs.

The announcement comes after U.S. President Donald Trump introduced new tariffs last month that threaten a chunk of New Delhi’s outbound shipments to its world’s biggest market.

Finance Minister Nirmala Sitharaman told a news conference late Wednesday that the reduced goods and services tax, or consumption tax, have been approved by an all-powerful government panel. They will take effect on Sept. 22, the first day of a major Hindu festival that precedes the festival of lights, Diwali, in October.

The government’s latest overhaul cuts the consumption tax tiers to a two-rate structure of 5% and 18% instead of the previous four tiers of 5%, 12%, 18% and 28%, according to the Finance Ministry.

A majority of the goods will attract lower taxes, though a special rate of 40% is proposed on a select few items such as high-end cars, tobacco and cigarettes. No tax would apply on purchases of life and health insurance.

Reducing the taxes is a part of Indian Prime Minister Narendra Modi’s broader plan to insulate the economy from the shock of U.S. tariffs, expected to hit an estimated $48.2 billion worth of Indian exports.

“The wide-ranging reforms will improve lives of our citizens and ensure ease of doing business for all, especially small traders and businesses,” Modi said in a post on the social platform X.

Trump last month imposed an additional 25% tariff on Indian goods in response to its unabated purchase of Russian oil, bringing the total tariffs to 50% and straining ties between the world’s two biggest democracies.

India–U.S. trade relations have expanded in recent years but remain vulnerable to disputes over market access and domestic political pressures. Officials have warned the new duties could make shipments to the U.S. commercially unviable, triggering job losses and slower economic growth.

To cushion the impact, India is also working on expanding its exports to other world markets such as Europe, Latin America, Africa and Southeast Asia.

Trade negotiations underway with the European Union have gained renewed urgency as India works to reduce its dependence on the U.S. market. The government is also discussing financial incentives that would include favorable bank loan rates for exporters.