India proposes lowering GST on small cars, sending shares higher

India aims to slash taxes on small cars and insurance premiums as part of a sweeping reform of its goods and services tax (GST), a government source said on Monday, sparking a rally in Indian stock markets.

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Prime Minister Narendra Modi's administration revealed plans over the weekend for the largest tax overhaul since 2017, with consumer, auto and insurance companies likely to emerge as the biggest winners when product prices drop from October, once the reform is approved.

The federal government has suggested lowering GST on small petrol and diesel cars to 18 per cent from the current 28 per cent, said the source who is directly involved in the matter.

The consumption tax on health and life insurance premiums may also be lowered to 5 per cent or even zero from 18 per cent currently, the same source said.

Shares of Maruti Suzuki, the biggest seller of small petrol cars in India, surged nearly 9 per cent on Monday, leading a rally in auto shares that helped push India's benchmark Nifty index 1.3 per cent higher, on course for its best day in three months.

Shares of other carmakers such as Mahindra & Mahindra, as well as motorbike manufacturers like Hero MotoCorp and Bajaj Auto, which will also benefit from tax cuts, jumped 2 per cent-4 per cent on Monday.