India Slashes GST Rates, Simplifies Tax Regime From September

India has undertaken a significant Goods and Services Tax (GST) reform, simplifying the tax structure from four slabs to two main rates of 5% and 18%, effective September 22, 2025, alongside a special 40% slab for luxury items. This overhaul reduces GST on various everyday essentials such as toiletries, packaged foods, and household items, with some items like Indian breads and certain dairy products now attracting zero tax, aiming to ease household budgets and boost consumer demand. Economists and industry groups view these changes as a timely stimulus that could offset adverse effects from US tariffs and support growth by enhancing consumption, manufacturing, and jobs, with growth forecasts for FY26 remaining optimistic around 6.5-6.6%. The reform also targets sectors like agriculture by lowering taxes on tractors and farm machinery and promotes healthcare and education through reduced levies, contributing to social welfare and human capital development. While the reduction in indirect taxes is expected to increase disposable income and consumption, it may create fiscal challenges for the government to balance revenue shortfalls, potentially influencing the Reserve Bank of India's monetary policy decisions. The Indian Rupee strengthened against the US Dollar following the announcement, reflecting investor anticipation of the economic boost from these reforms despite ongoing foreign institutional investor outflows.