India reduces tax rates to push consumption, dull tariff influence

The Indian government is expected to officially reduce the tax on goods and services on various subjects on Wednesday Wednesday will push consumption and facilitate the impact of tariffs in the US.

The GST decrease and an earlier income tax decline in April should increase consumer demand and corporation’s profits in the nearest and medium -term, Citi Research said on Thursday.

Indian households are expected to receive an incentive for a cost equal to 0.7% and 0.8% of GDP in the financial year, which ends in March 2026, Citi economists said, while the GST reduction could reduce inflation by 1.1 percentage if a complete tax reduction is transferred to consumers.

The GST India, which has been criticized for the complexity in the past, was simplified to a two -step structure of 5% and 18%, not on the current four slabs. An additional 40% of the “Super Luxury” and “Sin” tax such as cigarettes and high -end cars were also introduced.

These taxes that Indian Prime Minister Narendra Modi are first due in August on Independence Day, coming at a time when Indian exports to the United States face 50% of tariffs. India’s largest exports to the US includes textiles, gems and jewelry, as well as seafood, which is expected to be most affected.

Tariffs can affect the Indian economy by 0.6 percentage points, but “strong internal consumption” can reduce the impact, Goldman Sachs said on Monday.

While India’s domestic consumption was weak because “the phenomenon of revenge shops ended”, the country can easily absorb the influence of tariffs on the US if these tax reductions lead to the domestic consumption boom, said the pro-lobes, founder of the Marcellus Investment Management.

India’s domestic consumption – largely due to private or home expenditures – is more than 60% of GDP in the financial year 2025, close to other developed economies, such as the US and the UK, making it less dependent on exports.

When the domestic consumption is recruited, sluggish investments in the private sector can also bounce off, starting a “virtuous economic cycle,” Gubi said.

The decline of GST “Be sure to collect consumption”, – said Maulik Manankiwala, a Bdo India partner, said CNBC “Inside India”.

New tax rates will be valid from September 22, coinciding with the start of the holiday season in India. GST was reduced to zero or 5% of 12% or 18% on a number of packaged foods and fast moving consumer goods.

Air candidates, television kits, dishwashing machines, small cars and motorcycles equal or less than 350 cubic meters. CM will attract GST 18%, 28% earlier.

The government also completely reduced taxes on individual lifestyles and health insurance, as well as several rescue drugs.

“The decline of GST rates comes at the right time, which is just ahead of the festive season and against the backdrop of tariffs,” said Schrip-Shah, MD and Mumbai Cotak Securities.

Shah said Shah, who, he said, should directly increase the demand for traders and businesses to leave more money in his hands, said Shah, who he said.

Tax reducing also provides a relief of the textile industry, which has become one of the most difficult of the US tariffs. The GST for the textile goods was also simplified and reduced from 12% to 5%-long-lasting industry requirement.

But all these goodies will come at the expense. According to Citi, the reduction of GST will mean a pure income loss of 576 billion Indian rupees, or 0.16% of GDP for the fiscal year.