GST 2.0: Small cars, bikes cheaper from Navaratri; auto components at 18%

GST 2.0: GST on small cars (under 1,200cc/4,000 mm) and entry-level motorcycles (up to 350cc) has been cut from 28% to 18%, making them more affordable. Automakers like Maruti Suzuki, Hero MotoCorp, Honda Motorcycle & Scooter India, Bajaj Auto, and TVS Motor are expected to benefit.

The revised GST rates on small cars and entry-level motorcycles, up to 350 CC, have been reduced from 28 per cent to 18 per cent, making both segments cheaper for consumers.

Companies like Maruti Suzuki India that have the maximum number of small cars in their portfolio may gain from the revised rates, while Hero MotoCorp, Honda Motorcycle & Scooter India, Bajaj Auto and TVS Motor India would gain momentum in the entry-level motorcycles.

Two-slab GST structure effective Sept 22; PVs under 1,200cc at 18%

The GST Council, in its meeting on Wednesday, has approved limiting the slabs to 5 per cent and 18 per cent, effective from September 22, the first day of Navaratri this year.

Passenger vehicles (PVs) running on Petrol, LPG, and CNG, with a capacity of less than 1,200 CC and a length of not more than 4,000 mm, and Diesel vehicles with a capacity of up to 1,500 CC and a length of 4,000 mm, would move to the 18 per cent rate from the current 28 per cent.

Bigger cars, SUVs, bikes above 350cc face 40% levy

All vehicles above 1,200 CC and longer than 4,000 mm, as well as motorcycles above 350 CC and racing cars, will be charged with a 40 per cent levy. Small hybrid vehicles will also benefit, while the GST of 5 per cent on electric vehicles (EVs) remains unchanged.

Presently, automobiles are taxed at 28 per cent, which is the highest GST slab, and a compensation cess ranging from 1 to 22 per cent is levied on top of this rate, depending on the type of vehicle.

The total tax incidence on cars, depending on engine, capacity and length, ranges from 29 per cent for small petrol cars to 50 per cent for SUVs.

“Automobile industry welcomes the government’s decision to reduce the GST on vehicles to 18 per cent and 40 per cent, from earlier rates of 28 per cent to 31 per cent and 43 per cent to 50 per cent, respectively, especially in this festive season. This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector,” Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM), said.

Making vehicles more affordable, particularly in the entry-level segment — will significantly benefit first-time buyers and middle-income families — enabling broader access to personal mobility, he said.

“Furthermore, the resolution of classification interpretations and the correction of the inverted duty structure will greatly streamline business processes across the automotive industry, supporting ease of doing business,” Chandra said adding that the industry was also confident that the government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.

EVs remain at 5%; hybrid cars benefit; tractors, farm machinery cheaper

“We appreciate the continuation of the 5 per cent GST rate on EVs, which is a critical enabler of India’s clean mobility vision. This measure will further accelerate the adoption of EVs and reinforce India’s leadership in sustainable, green transportation,” Rajesh Jejurikar, Executive Director and Chief Executive Officer-Auto and Farm Sector at Mahindra & Mahindra (M&M), said.

He also said the move makes tractors and farm machinery more affordable for farmers, reduces costs for commercial vehicles and improves accessibility for personal mobility through rationalisation of rates across all sports utility vehicles (SUVs).

Santosh Iyer, Managing Director and Chief Executive Officer, Mercedes-Benz India, said, “Government listened to the automotive industry’s long standing wish list of rationalising GST rates. This GST revision is the step in right direction, is progressive and will induce the much-needed impetus by boosting consumption and bring momentum to the automotive industry which essentially remains the pulse of the Indian economy.”

He also said keeping the GST rate for BEVs (battery electric vehicles) unchanged would ensure “faster transition to a decarbonised future.”

Auto components moved to 18%; curb grey market, support MSMEs

GST on auto components has been reduced from 28 per cent to 18 per cent, and according to industry veterans, this change will help curb the grey market, ease compliance, support MSMEs, and enhance the global competitiveness and resilience of India’s automotive component industry.

“Automotive Component Manufacturers Association of India (ACMA) welcomes the government’s decision to bring all auto components under a uniform 18 per cent GST slab — a long-standing recommendation of the industry,” Vinnie Mehta, Director General, ACMA, said.

Saurabh Agarwal, Partner & Automotive Tax Leader, EY India for the Auto sector, said that by making vehicles more affordable across all segments, the move will not only boost consumer spending but also simplify complex classification disputes that have long burdened the industry.

“The discontinuance of the cess is a particularly pragmatic step, which will provide much-needed support to a sector that is a vital contributor to our nation’s GDP. While this change is broadly positive, the automotive industry must now carefully reassess the financial impact of state incentives and subsidies, which are often linked to GST rates,” he said, adding that this may necessitate a renegotiation with State governments to address potential changes in costs and clawback periods.

Published on September 4, 2025

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