GST Bonanza | Small cars likely to see Rs 45,000 to 1 lakh price drop due to GST rejig

All automobiles exceeding 1,200 cc and longer than 4,000 mm, as well as motorcycles exceeding 350 cc and racing cars, will be charged with a 40% levy.

New Delhi: Small car prices are likely to see a price drop ranging between Rs 45,000 to Rs 1 lakh due to GST rate rationalisation announced in the automotive sector, industry observers said on Thursday.

The GST rate rejig is expected to revive demand in the entry-level segment, especially in the smaller towns and cities, in the ongoing festive season.

The small car segment accounted for just 31 per cent of the total PV sales in FY 2024-2,5 and the share has further slipped to 27 per cent between the April-July period of 2025.

"In the small car segment, if the GST comes down by 10 per cent, the retail price for the customers will come down by 8.5-9 per cent, and that kind of reduction is substantial," Maruti Suzuki India Chairman RC Bhargava told PTI.

"In terms of quantum, this 9 per cent reduction would account for Rs 45,000-Rs 50,000 at a minimum level. So the cheapest car could see a drop in price of about Rs 45,000," he added.

Bhargava noted that this kind of price reduction would help bring customers back to the market. "The growth of the small car segment will accelerate and is likely to touch 10 per cent."

Grant Thornton Bharat Partner Saket Mehra said the rate cut could significantly lower acquisition costs in the small cars by up to Rs 1 lakh (accounting for a 12 per cent drop in process), which is expected to revive demand, especially in Tier 2, 3 cities, with the festive season approaching.

In contrast, midsize and luxury vehicles will now attract a GST rate of 40 per cent without the compensation cess, ranging between 17-22 per cent, making these vehicles cheaper, despite moving to a higher GST rate.

The GST Council's decision to cut tax rates on various categories of automobiles is timely and will inject fresh momentum into the Indian automotive sector and significantly benefit first-time buyers and middle-income families, auto industry players said.

The simplification of tax structure and lower rates for mass mobility is a decisive step that will boost affordability and spur demand, they said, hoping that the government will soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.

Society of India Automobile Manufacturers (SIAM) President Shailesh Chandra said the automobile industry welcomes the government's decision to reduce the GST on vehicles to 18 per cent and 40 per cent, especially in this festive season.

Further, he said, "This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector.

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

Expressing similar sentiments, Federation of Automobile Dealers' Associations (FADA) President C S Vigneshwar said the "bold and progressive reforms" simplify the tax structure, lower rates for mass mobility, and bring consensus across all states.

"This is a decisive step that will boost affordability, spur demand, and make India's mobility ecosystem stronger and more inclusive," he said, adding, "as the country heads into the peak festive season, glitch-free and implementation will be the key to ensuring that the benefits seamlessly reach customers".

TVS Motor Company Chairman Sudarshan Venu said the GST rate cut is a major move by the government to further turbocharge growth. "It will significantly boost consumption across segments of society."

The auto industry is "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".

The relief extended to smaller vehicles, along with the rationalisation of levies on larger ones, will enhance mobility for the common man by making it more accessible and affordable, while at the same time stimulating growth across the automotive sector, Toyota Kirloskar Motor Deputy Managing Director Swapnesh R Maru said.

The 40 per cent GST on premium cars without any additional cess is good news for the premium car industry and will drive new sales. The uniform rate of 18 per cent for auto parts will also have a good impact on the supply chain and demand for high-quality original parts, BMW Group India President and CEO Hardeep Singh Brar said.

"However, the increase in GST to 40 per cent for motorcycles above 350 cc will have a negative impact on the mid-segment and high-end segment models, which have been seeing good growth for the past few years," he added.

Hyundai Motor India MD Unsoo Kim said the GST overhaul will directly benefit the automotive sector.

"Notably, 60 per cent of our ICE portfolio will now fall under the 18 per cent slab rate, with the remainder at 40 per cent," he added.

According to Renault India MD Venkatram Mamillapalle, the rationalised GST will ease household expenses, fuel consumption, and create a multiplier effect on long-term economic growth.

The GST reform will spur freight traffic, and on the other hand, it will bring down the cost of buses and trucks, unleashing demand trajectory for commercial vehicles, said Ashok Leyland MD & CEO Shenu Agarwal.

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

Under it, petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length would move to the 18 per cent rate.

Earlier, these two categories attracted 28 per cent GST with compensation cess of 1 per cent, and 28 per cent GST with 3 per cent compensation cess, respectively.

Motorcycles up to 350 cc would be taxed at a lower GST of 18 per cent against 28 per cent earlier.

All automobiles exceeding 1,200 cc and longer than 4,000 mm, as well as motorcycles exceeding 350 cc and racing cars, will be charged with a 40 per cent levy.

Small hybrid cars will also benefit, while EVs will continue to be charged at 5 per cent.