New Delhi, August 18, 2025 – In a move poised to reshape India’s tax landscape, the central government has proposed a comprehensive rejig of the Goods and Services Tax (GST) structure, aiming to simplify slabs and reduce rates on key consumer items. Finance Minister Nirmala Sitharaman is scheduled to present these reforms at a Group of Ministers (GoM) meeting on August 20, with implementation potentially by Diwali. The proposals include scrapping the 12% and 28% slabs, shifting most goods to either 5% or 18%, and specific cuts on small cars, two-wheelers, and insurance premiums.
The overhaul is expected to make everyday items more affordable, stimulating consumer spending and economic growth. Under the plan, 99% of items currently taxed at 12% would move to 5%, while 90% of those at 28% shift to 18%. Small petrol and diesel cars could see GST drop from 28% to 18%, two-wheelers may follow suit, and health/life insurance premiums might fall from 18% to 5% or even zero. These changes, part of Prime Minister Narendra Modi’s vision for “next-gen GST reforms,” are projected to reduce the fiscal burden while maintaining revenue neutrality through anti-profiteering measures.
Broad Benefits for Startups
Experts believe the simplified GST regime will particularly aid startups by lowering operational costs and easing compliance. With fewer tax slabs, businesses can expect reduced administrative hurdles, allowing entrepreneurs to focus on innovation rather than tax navigation. Lower rates on consumer durables and daily-use items—such as electronics, appliances, and processed foods—could boost disposable income, driving demand for startup products in e-commerce, fintech, and retail sectors.
For early-stage ventures, the proposed cuts on insurance premiums stand out as a game-changer. Startups often grapple with high costs for health and life insurance for employees, which could now become significantly cheaper or tax-free. This reduction is estimated to save businesses thousands in annual premiums, freeing up capital for R&D, hiring, and expansion. “A nil or 5% GST on insurance will make it easier for startups to attract talent by offering better benefits without straining budgets,” said a Delhi-based venture capitalist.
Additionally, the overall tax rationalization could enhance investor confidence. By making India a more business-friendly environment, the reforms align with the government’s push for ‘Make in India’ and startup ecosystems, potentially increasing foreign direct investment in emerging sectors.
Spotlight on EV Startups: Opportunities Amid Challenges
The electric vehicle (EV) segment, a hotbed for innovative startups like Ola Electric, Ather Energy, and emerging players in battery tech, stands to gain indirectly from the reforms, though the impact is nuanced. EVs already enjoy a concessional 5% GST rate, compared to 28% (plus cess) on internal combustion engine (ICE) vehicles, which has driven affordability and adoption. However, the proposed reduction on small ICE cars and two-wheelers to 18% could narrow this price gap, potentially slowing EV penetration by making traditional vehicles more competitive.
Despite this, EV startups could benefit in several ways. First, lower GST on insurance premiums would reduce costs for EV owners, who often pay higher premiums due to battery risks. A drop to 5% or nil could make EVs more attractive to buyers, indirectly boosting demand for startup-manufactured vehicles and components. “Affordable insurance is key to EV adoption, especially for price-sensitive consumers,” noted an industry analyst.
Second, if the rejig extends to EV inputs like lithium-ion batteries (currently at 18%), shifting them to lower slabs could slash production costs. Industry bodies like FICCI have long advocated for aligning battery GST with EVs at 5%, which could accelerate infrastructure development and make vehicles cheaper. For startups focused on charging stations or battery swapping, reduced rates on related goods (e.g., electronics moving to 18% from 28%) would lower setup expenses.
Third, broader economic stimulus from the reforms—such as increased consumer spending on durables—could fuel growth in ancillary services. EV startups might see higher investments as the auto sector booms, with Nomura projecting a 15-20% demand surge overall. However, experts warn that without targeted safeguards, like maintaining the EV-ICE tax differential, the sector’s momentum could wane.
The GoM meeting will be crucial in finalizing details, with anti-profiteering provisions ensuring benefits reach consumers. As India eyes a greener future, these reforms could catalyze startup innovation in EVs, provided the government balances incentives across vehicle types.
