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A potential GST rate cut on cars could stimulate demand in the mass-market segment but demand for luxury cars is still likely to remain muted, according to an analyst.
Luxury car sales are likely to grow in the mid-single digits in FY26 as 50% US tariffs on India are likely to dampen sentiment.
According to Jitin Makkar, senior vice president and group head (corporate ratings) at ICRA Ltd., luxury car sales are likely to grow in the mid-single digits as 50% US tariffs on India are likely to dampen sentiment.
Between FY22 and FY25, growth in India’s luxury car sales outpaced that of the broader passenger market, driven by strong aspirational demand across diverse demographics, including younger and first-time buyers.
“However, this trend is poised to reverse in FY26. A potential GST rate cut on smaller cars could stimulate demand in the mass-market segment, while the luxury segment may face a more subdued environment,” Makkar told the Press Trust of India.
Already, in the first half of 2025, growth in luxury car sales has been tepid, weighed down by geopolitical tensions and stock market volatility.
“Although festive season buying may lift volumes sequentially, overall growth for the full year is likely to remain muted,” he said.
GST reforms
Prime Minister Narendra Modi, in his Independence Day speech, announced India’s biggest indirect tax reforms since 2017 when Goods and Services Tax first came into effect. The GST structure is likely to become a two-tier system from four-tier at present.
According to reports, the government is planning only two tax slabs—5% and 18%—from 5%, 12%, 18% and 28% at present. An additional tier of 40% is also planned but only for so-called sin goods, thereby doing away with additional compesation-cess mechanism.
Luxury cars are likely to fall in the 40% bracket, which—without the cess—would make such vehicles cheaper. At present, luxury cars can be taxed up to 50% depending on the cess applicable.
The festive season, which usually commences with Onam and ends with Diwali every year, is particularly lucrative for the likes of Mercedes-Benz, BMW, Audi in India. Any delay in clarity on GST rate on luxury cars would dent their annual sales.
GST on luxury cars
BMW, Audi and Mercedes-Benz want clarity on GST on luxury cars at the earliest, for that will allow them to devise their festive sales strategy.
Speculation over the nature of the upcoming GST reforms has resulted in uncertainty among consumers, BMW Group India CEO Hardeep Singh told PTI. While interest and demand is strong, buyers have adopted a wait-and-watch appoach. That is impacting decision-making at a certain level.
“Expediting clarity on GST rates is essential to get back to speed and ensure that the auto sector’s contribution to economic growth during this quarter is robust,” Brar said.
According to Audi India Head Balbir Singh Dhillon, the German carmaker is entering the festive season with steady momentum and a positive outlook.
“Post the GST clarification expected in the first week of September, we expect consumer confidence to grow and demand to increase across our product range—particularly for our SUVs, which continue to attract customers,” he told PTI.
Mercedes-Benz India MD & CEO Santosh Iyer said the festive seasonality is highly anticipated by customers and the company will roll out an integrated campaign next week, addressing customers’ aspirations.
“We expect this festive season to bring in impetus and drive sales as this is the right time, owing to positive customer sentiment and a refreshing new portfolio on offer,” he said.
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