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, as Prime Minister Narendra Modi's plan sparked a rally in stock markets, Reuters reported.

Modi's administration revealed plans of the biggest tax overhaul since 2017 over the weekend, and consumer, auto and insurance companies are 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% from the current 28%, said the source who is directly involved in the matter. The GST on health and life insurance premiums may also be lowered to 5% or even zero from 18% currently, the same source said.

Indian markets climbed on Monday, with the benchmark Nifty index trading 1.3% higher, on course for its best day in three months. Auto stocks also rallied, according to Reuters.