The proposed new GST reforms will push GST tax on small cars in India down to 18 per cent as hatchbacks and compact cars will cost up to 25,000 rupee less. Learn the essential facts, influence on pricing impacts and what it implies to the buyers.
GST Reforms: Big relief on small car buyers
This would likely enable the Government of India to cut GST tax on the purchase of small cars, especially in the entry-level automobile segment, down to 18% in a move that could trigger significant demand boosting effect in the market. This reform, due to be launched in advance of Diwali 2025 is one of the many reforms that the Centre has planned to simplify the Goods & Services Tax, to only 2 slabs of 5% and 18%.
During his address to the nation on the Independence Day of India, Prime Minister Narendra Modi reaffirmed that the government will introduce new-gen GST reforms to make taxpaying more comfortable among the citizens.
Presently, the amount Of tax payable on Cars
- Small Cars: 28 per cent GST + 1 per cent cess
- Large SUVs: 50 percent-43 percent GST
- Electric Vehicles (EVs): 5 percent GST (Intact in the new structure)
In the event of implementation of the proposed changes, petrol/CNG/LPG-powered small hatchbacks and compact cars less than 4 metres will be shifted to the 18 percent GST slab.
Effects on Prices of Cars
Pundits opine that the reduction in tax may see ex-showroom reductions in small car prices of 1213 percent, or savings of 20,000-25,000 per car.
VG Ramakrishnan, Managing Partner at Avanteum Advisors, said an 11 percent cut in the GST will help restore the sentiment and purchase of the small cars.
Existing popular entry-level vehicles, such as the Maruti Alto, hyundai grand i10, Tata Tiago, WagonR, Tata Punch and Hyundai Exter are being considered to be subjected to price reductions.
The rationale behind why little cars should be given this push.
The small car segment which has formed the tradition of the Indian automobile market has not been doing well. Sales declined by 13 percent YoY to mere 1 million units in FY25 with SUV increasing by 10 percent to 2.35 million units.
Partho Banerjee, Senior Executive Officer, Maruti Suzuki, says that the increases in prices has made small cars seem out of reach to the low end customer. The lowering of GST would be likely to render them popular again.
Other Category GST Rates
- Luxury SUVs Cars: To fit into a special slab of 40% GST (reduced to 43 50%)
- EVs: To attract Electric Vehicles to stay in tax-slab 5%
- General Goods: To scrap the 12% and the 28% slabs and retain 5% and 18%
will the decision be made final?
A decision on slashing GST tax on small vehicles will be made in the GST Council meeting in September 2025. Provided this is allowed, new structure shall be implemented before Diwali time as a gift given to the buyers during the festive season.
