Cars are seen parked at Maruti Suzuki's plant at Manesar.
Credit: Reuters photo
Bengaluru: The rationalisation of Goods and Services Tax (GST) is set to give a much-needed fillip to the automobile sector which has been seeing muted traction over the past few years. The GST rate cut will lead to a correction in car prices.
The GST Council has bi-furcated GST under 3 slabs of 5 per cent, 18 per cent and 40 per cent for the Indian automobile industry. Electric vehicles continue to be at 5 per cent GST while the others have seen a rate revision to 18 per cent or 40 per cent.
FY26 had started off on a weak note for the auto sector as most segments, except tractors, were currently trailing growth expectations. After the first four months of FY26, domestic 2W industry was down 4 per cent YoY (earlier estimate of high-single-digit growth), PVs were down 1 per cent YoY (est of 2- 4 per cent growth) and CVs were flat YoY (estimate of mid-single digit growth).
In the passenger vehicle segment, Maruti Suzuki and Hyundai Motor stand to emerge as the biggest beneficiaries of this rate cut as they have a sizeable portion of their mix coming from the sub 4-meter segment. Further, given that there was still an uncertainty around whether or not the final tax incidence on UVs would be lower or not, M&M stands to gain after the clarification regarding the cessation of compensation cess. M&M also benefits from the fact that GST rates on both tractors and tractor parts have been reduced to 5 per cent from 12 per cent and 18 per cent earlier, according to Motilal Oswal.
As per the new GST rate structure, the small cars (up to 4-meter in length), which as of FY25 accounted for 32 per cent of industry volumes, will now be taxed at a flat rate of 18 per cent. Cars above 4-meter (the remaining 69 per cent) would be taxed at a peak rate of 40 per cent, which is still lower than the previous average of 43-50 per cent tax bracket, as compensation cess is no longer being levied on automobiles.
In the case of internal combustion engine (ICE) and hybrid vehicles, prices of entry-level hatchbacks (e.g., Wagon R), premium hatchbacks (eg, Swift), compact sedans (eg, Swift Dzire), and sub-compact sport utility vehicles (SUVs) with <1,200 cc petrol or <1,500 cc diesel engines (e.g., Punch) will decline about 8.5 per cent, according to Crisil Intelligence.
Meanwhile, prices of large sedans (eg, Virtus), compact SUVs (eg, Brezza), mid-SUVs (eg, Creta), and multi-purpose vehicles (MPVs) with <1,500 cc engines (eg, Ertiga) will reduce about 3.5 per cent Further, prices of premium SUVs (eg, XUV 7OO) and MPVs with >1,500 cc engines (eg, Innova) will fall about 6.7 per cent.
Two wheelers
Hero Motocorp stands to benefit the most given that 95 per cent of its volumes come from the domestic segment of up to 350cc. Benefits for Bajaj Auto and TVS are limited given their relatively high exposure to exports and EVs. Similarly, for Royal Enfield (RE), its up-to-350cc segment (81 per cent of mix) stands to benefit, while its >350cc domestic segment (8 per cent of mix) will be adversely impacted by the higher GST rates, Motilal Oswal said.
"The GST tax cuts are a major move by the government to further turbocharge growth. It will significantly boost consumption across segments of the society. For our industry especially, it’s a welcome move as it will help 2Ws become more accessible and also help those looking to upgrade," Sudarshan Venu, Chairman, TVS Motor Company, said.
In the case of ICE two-wheelers, prices of almost all categories, except one, will reduce about 7.8 per cent. Prices of premium two-wheelers with >350 cc engine will increase about 6.9 per cent, Crisil said.
Commercial vehicles
The GST rate on trucks has been reduced to 18 per cent from 28 per cent earlier. The CV segment will see an indirect benefit, as a reduction in GST rates on key segments would increase consumption in the economy, which would, in turn, help revive CV volumes in the coming quarters. However, the only pure-play CV company that would benefit from this is Ashok Leyland.
The GST rates on tractors and tractor parts have been reduced from 18% to 5 per cent. The inverted duty structure on tractors has now been taken care of. Major beneficiaries include M&M and Escorts in the tractor segment.
According to the new rates, all auto parts (excl. farm-related products) would now attract an 18 per cent GST slab.