Officials expect the reforms to boost retail spending, though some premium goods face higher taxes, with analysts watching the economic impact. / Credit: cameranest via Shutterstock

India has implemented significant Goods and Services Tax (GST) reforms aimed at reducing retail prices and stimulating consumer spending.

These changes, effective from September 22, 2025, are expected to lower the cost of everyday items and simplify the tax structure for businesses.

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GST reform simplifies tax structure

The GST overhaul reduces the number of tax slabs from four to two: 5% and 18%. This simplification is designed to ease compliance for businesses and make goods more affordable for consumers.

Items such as toothpaste, shampoo, and packaged food now fall under the 5% tax bracket, down from 18%. Electronics and small cars have been moved from the 28% slab to 18%, while life and health insurance policies are now exempt from GST.

Expected impact on consumer spending

The Reserve Bank of India (RBI) anticipates that these tax cuts will lead to lower retail prices, thereby boosting consumer demand.

The RBI’s September 2025 bulletin notes that improved agricultural sowing is also expected to help control food prices, further supporting household budgets.

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Potential challenges and considerations

While the reforms are expected to stimulate consumption, there are potential challenges. The government projects a revenue loss of ₹480bn ($5.5bn) due to the tax reductions.

Additionally, some sectors may face higher taxes; for example, apparel priced above ₹2,500 is now taxed at 18%, up from 12%, which could impact premium clothing brands.

These GST reforms are part of India’s broader efforts to simplify its tax system and encourage domestic consumption, which is a key driver of economic growth.

The full impact of these changes will become clearer in the coming months as businesses and consumers adjust to the new tax landscape.