India's Tax Relief: A Boost for Festive Spending Amid Economic Challenges

Thu Oct 23 2025 01:56:53 GMT+0300 (Eastern European Summer Time)

As India embarks on a festive season, a significant reduction in goods and services tax (GST) offers relief to consumers and is expected to invigorate spending, despite potential long-term economic implications.

Starting this week, millions of Indians will enjoy reduced goods and services tax (GST) rates on essential items and various goods, coinciding with a major festive season. The tax cuts aim to encourage consumer spending and stimulate economic growth, but they come with concerns over potential revenue losses for the government. Experts predict a positive impact on middle-class purchasing power, even as companies scramble to adjust to the rapid changes.

Starting Monday, the daily economic burdens of millions of Indians could ease slightly.

Staples like milk and bread, life and medical insurance and life-saving drugs will become tax-free. Consumption tax on small cars, television sets and air conditioners will drop from 28% to 18%. And other common goods like hair oil, toilet soap and shampoo will be taxed at a marginal 5% instead of 12% or 18%.

The sweeping cuts are part of Prime Minister Narendra Modi's major overhaul of India's complex goods and services tax (GST) regime announced earlier this month.

This is expected to both simplify the tax code and give flagging household consumption - which makes up over half of India's gross domestic product (GDP) - a much-needed fillip.

The timing couldn't be more opportune. Lower GST rates coincide with the beginning of a long festive season when Indians typically open their purse strings to buy everything from new cars to clothes.

This four-month period also brings in a bulk of yearly sales for consumer goods companies such as packaged food makers and apparel manufacturers.

The hope is, reduced taxes will mitigate some of the impact of the US's bruising 50% tariffs on India, leave people with more money to spend and spruce up the domestic economy.

The cuts come off the back of a $12bn income tax giveaway announced in February and lower interest rates from India's central bank, all of which bode well for a consumption pick-up.

Companies, including Reliance, consumer staples giant HUL, and automaker Mahindra & Mahindra will pass on lower taxes to consumers to boost demand.

Carmakers are banking on the cuts, with share prices up 6-17% since Modi's August announcement, while dealerships report rising enquiries amid unsold inventory.

At a Mumbai showroom of Hero Motocorp, India's largest motorbike manufacturer, a dealer expected sales to jump 30–40% over the next two months compared to last year.

However, despite the positive outlook, the changes have led to last-minute scrambling among companies to adapt to pricing updates as the festive shopping season approaches.

While larger companies are prepared, smaller retailers and vendors are struggling to keep up with the rapid changes in taxation, risking potential confusion as they try to manage new prices.

In Mumbai's Crawford Market, where various goods are sold, many shopkeepers are unaware of the tax changes and some express that adjusting to the updated pricing system can be a challenge.

The overall expectation leans towards a beneficial effect on consumer spending and economic activity, but unforeseen circumstances could still overshadow this festive boost.