Will new GST cuts help Tata Motors, Hero MotoCorp, Bajaj, Maruti Suzuki and other automakers lift declining domestic sales?- The Week

Passenger vehicle makers, who have seen sales slow over the last several months, especially when it comes to cars, have something to cheer about with the Goods and Services Tax (GST) Council slashing the GST rate.

Two-wheeler makers and car makers are the biggest beneficiaries of this move. Around 92 per cent of the domestic two-wheeler industry is powered by sub-350cc engines. The GST on them will come down to 18 per cent from 28 per cent.

Passenger vehicles that are sub-4 meter, have less than 1200 cc engine in case of petrol and 1500cc in case of diesel engine, also stand to benefit with lower 18 per cent GST. Such vehicles, essentially small cars, micro and compact SUVs and compact sedans, account for nearly 60 per cent of the domestic passenger vehicle market, and earlier were taxed at around 30-31 per cent (GST plus cess). So, a major chunk of the market should see its prices decline due to the lowering of GST.

“This will provide much-needed relief to an industry that has been struggling for the last few years,” said Kuldip Singh Rathee, chairman and MD of ASK Automotive.

According to the Society of Indian Auto Manufacturers (SIAM), in the financial year ended March 2025, total passenger vehicle sales rose 2 per cent to 43.01 lakh units. However, while utility vehicle sales surged 11 per cent to 27.97 lakh units, car sales declined 12.6 per cent to 13.53 lakh units.

Things only went downhill in the April-June quarter of 2025, with total passenger vehicle sales declining 1.4 per cent to 10.11 lakh units. While UV sales rose 3.8 per cent to 6.70 lakh units, car sales declined 11.2 per cent to 3.02 lakh units.

Passenger cars have become expensive over the years, due to raw material cost pressures as well as the implementation of new regulations, including additional safety standards. The GST cut should make them a bit more affordable.

“The reduction of GST on entry-level vehicles from 28 per cent to 18 per cent, along with the retention of 5 per cent GST on electric vehicles, will boost sales among first-time buyers and middle-income families, while also promoting new opportunities for personal mobility and last-mile connectivity,” said Rathee.

Car makers like Maruti Suzuki and Tata Motors, which have a sizeable share in cars and compact SUVs, should be among the big beneficiaries following the GST cut.

At first glance, it may seem that bigger cars and SUVs will be taxed more as the GST has gone up from 28 per cent to 40 per cent. However, important to note here is that earlier, with the cess included, their GST rate would have been around 45-50 per cent. So, they would also see a GST benefit of around 5-10 per cent, according to analysts.

Balbir Singh Dhillon, head of Audi India, says the GST simplification would support industry growth and help expand the market.

“The GST Council’s move to retain a low rate for EVs is a welcome step; this brings much-needed clarity and makes our portfolio more accessible to our discerning buyers,” he said.

Motorcycles above 350cc are going to be impacted, for sure, with their GST rate going up to 40 per cent from the earlier 31 per cent (28 per cent GST plus 3 per cent cess). This segment may be small in the overall two-wheeler industry, but analysts at Equirus Securities point out that it will be particularly negative for Royal Enfield, which has 10 per cent of its domestic volumes coming from this segment.

Automotive shares had already gone up over the past month in the anticipation of the GST cut and were trading mixed on Thursday. Maruti Suzuki, for instance, was down 1 per cent. Shares of the country’s largest car maker had surged over 20 per cent in the past month. Tata Motors was trading up 0.4 per cent on Thursday, on top of the 6 per cent rise over the past month. Hyundai Motor India, which had gained 15 per cent in the past month, was down 0.9 per cent.

The gainers on Thursday were led by Mahindra & Mahindra, which was up over 6 per cent, Eicher rose 1.7 per cent, TVS Motor gained 1.6 per cent, Hero MotoCorp rose 0.7 per cent, and Bajaj Auto gained 0.4 per cent.

“M&M is likely to be the beneficiary owing to a 10 per cent cut in GST rate across its portfolio (two-thirds portfolio to be at 40 per cent versus 50 per cent earlier with cess; balance at 18 per cent versus 28 per cent earlier), while Maruti and Hyundai will see similar benefits in the form of a 7-8 per cent blended cut in GST for their respective portfolio,” said Chirag Jain of Emkay Global Financial Services.

He feels the tax cut could potentially offer a 5-10 per cent demand boost across categories. Maintaining the tax on EVs at 5 per cent should also act as an added tailwind for the ongoing electrification, he added.

The analysts at Equirus say two-wheeler makers and related ancillaries will be the key beneficiaries of the GST reforms, with the strong replacement base likely triggering pent-up demand.

“In contrast, the PV segment should see only a gradual recovery, as consumer sentiment on the ground remains mixed – small cars may witness some revival, while the premium segment is likely to remain largely unaffected,” they said.

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