GST 2.0: Big savings on small cars, prices to drop by 12-12.5%

The reset in GST rates is likely to boost demand for small cars and two-wheelers among entry-level consumers, who had stayed away from the market for the last few years amid low income growth and inflationary pressures. Big SUVs also are set to become cheaper with the GST Council putting all petrol, diesel and hybrid vehicles broadly under two tax rates — 18% for vehicles under 4 metres long and 40% if they are longer.

Small cars (less than 4 metres in length and engine capacity of under 1200 cc for petrol and 1500 cc for diesel) will attract 18% GST with effect September 22, compared with total levies of 29-31% under the current regime. Motorcycles with engine capacity less than 350 cc also will be taxed at 18% as against 28% now. If there is an 11% reduction in GST, the ex-showroom price of small cars will come down by 12-12.5%, according to industry experts.

Also Read: GST 2.0 gets the green light; what gets cheaper and costlier from September 22?

This means for a car with an ex-showroom price of Rs 500,000, prices will come down by Rs 62,500.

Larger cars — including sports utility vehicles and luxury vehicles — will become slightly cheaper as they will be taxed at the special rate of 40%, compared with 43-50% currently, including cess. With auto parts also set to attract a uniform rate of 18% (as against current 28%), prices are likely to come down across the value chain.

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Overall, the GST recast will substantially reduce tax burden on consumers in the mass market, buoying volumes across categories, but especially in the small-car segment, experts said.

“Cutting GST on small cars to 18% is a big boost for the auto industry, especially with the festive season around the corner. It’s expected to revive demand for entry-level cars and make compact models more affordable for buyers,” said Gaurav Vangaal, associate director at S&P Global Mobility. “Brands like Maruti, Tata and Mahindra are likely to benefit the most, especially with popular small crossovers like Fronx and Punch gaining traction.”

Sales of compact cars and hatchbacks in FY25 fell 13% from the year before to about 1 million units, less than half the SUV sales volume that rose 10% to about 2.35 million, industry data accessed by ET showed. The share of small cars in the overall PV market fell for the fifth straight year to 23.4% in FY25.
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