The Indian government has unveiled plans for a sweeping reform of the Goods and Services Tax (GST), marking the most significant overhaul since its introduction in 2017. According to government sources, the proposed measures aim to lower the tax burden on consumers while spurring demand in key sectors such as automobiles and insurance.

Tax Cuts on Small Cars

Under the proposal, GST on small petrol and diesel cars could be reduced from 28% to 18%. This category includes vehicles with engine capacity below 1200cc for petrol and 1500cc for diesel, not exceeding four meters in length. Industry analysts expect this move to make small cars more affordable, potentially reviving demand that has shifted toward SUVs in recent years.

Shares of Maruti SuzukiIndia’s largest small car manufacturer, surged nearly 9% following the news, leading a rally in auto stocks. Other carmakers, including Mahindra & Mahindra, Hero MotoCorpand Bajaj caralso saw gains of 2-4%.

Relief on Insurance Premiums

The government has also suggested cutting GST on health and life insurance premiums from the current 18% to 5% or possibly zero. The proposal has already boosted investor confidence, with stocks of insurance companies such as ICICI Prudential, SBI Life, and LIC rising between 2% and 5% before paring gains.

Market and Business Response

Industry leaders have welcomed the tax rationalisation. Maruti Chairman R.C. Bhargava termed the move a “huge reform” that will increase affordability and bring more buyers into the market. Analysts also believe lower costs will enhance the competitiveness of Indian products, particularly in global trade.

Structural Changes Ahead

The proposal is part of a broader restructuring that will simplify GST rates to just two slabs: 5% and 18%eliminating the highest 28% bracket. However, so-called “sin goods” such as tobacco and luxury items will attract a 40% tax.

The reform, however, will only take effect once the GST Councilchaired by the Union Finance Minister and state representatives, approves the plan in its upcoming October meeting.

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