GST 2.0 Cuts Vehicle Prices: Auto Industry Hails ‘Game-Changing’ Reform

The Indian automotive industry has hailed the Goods and Services Tax (GST) Council’s sweeping reforms, calling them a timely boost for both consumers and manufacturers. With tax rates across vehicle categories slashed, industry leaders believe the move will make personal mobility more affordable, spur demand during the festive season, and inject fresh momentum into a sector that has been grappling with sluggish entry-level sales since the pandemic.

Key GST rate changes announced

Announcing the decisions on Wednesday, the GST Council reduced indirect tax rates on small cars—under four metres with engine capacities below 1200cc (petrol) and 1500cc (diesel)—from 28–31% to 18%. Bigger vehicles, including SUVs, will now attract a 40% tax rate, down from 43–50%. Motorcycles below 350cc also shift into the 18% bracket. The earlier 12% and 28% slabs have been scrapped, leaving only 5%, 18%, and the new 40% slab for luxury and sin goods. The compensation cess has also been withdrawn.

Industry leaders applaud the move

Shailesh Chandra, President of the Society of Indian Automobile Manufacturers (SIAM), welcomed the reform as “a landmark step.”

“Automobile industry welcomes the Government’s decision to reduce the GST on vehicles to 18% and 40%, from earlier rates of 28% to 31% and 43% to 50%, 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. 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,” he noted.

The continuation of 5% GST on electric vehicles was also lauded by SIAM, with Chandra noting it would sustain the ongoing momentum toward sustainable mobility.

R.C. Bhargava, Chairman of Maruti Suzuki India Limited, also welcomed the GST overhaul, calling it a major reform that would boost both the economy and consumer purchasing power. He stressed that placing small cars in the 18% GST bracket would revive a flagging market and make safer, more comfortable vehicles affordable to more people. According to him, this change could help the passenger vehicle industry return to a growth trajectory of about 7% annually, while also creating wider benefits for manufacturing and employment.

Unsoo Kim, MD of Hyundai Motor India, said the reforms would strengthen consumer confidence and give a decisive push to domestic manufacturing:

“This revolutionary step will provide a strong impetus to the Indian economy, enhance buoyancy, and further strengthen consumer confidence. Notably, 60% of our ICE portfolio will now fall under the 18% slab rate, with the remainder at 40%. HMIL remains committed to supporting the Government’s vision of Viksit Bharat and contributing to India’s journey toward becoming a global manufacturing powerhouse.”

Also Read: Will GST Cut Make Cars & Bikes Cheaper? Here’s What Jefferies Predicts | Republic World

Impact on Tractors, Commercial Vehicles, and SUVs

Rajesh Jejurikar, Executive Director & CEO – Auto and Farm Sector, Mahindra & Mahindra, described the changes as “far-reaching.” He 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 SUVs. Together, these measures are expected to stimulate demand and drive inclusive growth across the entire ecosystem.”

Anish Shah, Group CEO & MD, Mahindra Group, went a step further, calling GST 2.0 “transformative.” According to him, the reforms simplify compliance, expand affordability, energise consumption, and encourage industry investments.

Commercial vehicle makers also see benefits. Shenu Agarwal, MD & CEO, Ashok Leyland, said, “The GST rate reductions represent a forward-looking step towards simplifying India’s tax structure and accelerating economic momentum. The shift to a streamlined two-tier system of 5% and 18% will not only ease compliance but also bolster key sectors, uplift consumer sentiment, and reduce the financial burden on the common man. The relief for the commercial vehicle industry will spur freight traffic, bring down costs of buses and trucks, and unleash demand.”

Dealer and auto parts makers react

C.S. Vigneshwar, President of the Federation of Automobile Dealers Associations (FADA), said the 56th Council meeting marked “a watershed moment.” He stressed, however, that clarity was needed on cess balances lying in dealers’ books to avoid ambiguity during transition.

Sudarshan Venu, Chairman of TVS Motor Company, linked the tax cuts to broader economic growth:

“The GST tax cuts are a major move by the government to turbocharge growth. It will significantly boost consumption across segments of society. For our industry, it will help two-wheelers become more accessible and aid those looking to upgrade.”

The Automotive Component Manufacturers Association of India (ACMA) described the uniform 18% GST rate on auto parts as “historic.” President Shradha Suri Marwah said it would curb grey markets, support MSMEs, and strengthen competitiveness. Faster export refunds for smaller exporters were also welcomed.

Industry experts' views

Saurabh Agarwal, Partner & Automotive Tax Leader at EY India, called the cess withdrawal “a pragmatic step.” He added that the reforms would simplify classification disputes and support consumer spending, though companies may need to reassess state incentives and subsidies linked to GST rates.

GST 2.0 marks a significant reform, lowering tax rates to boost vehicle affordability and stimulate demand across segments. The true test lies in how swiftly these changes drive higher sales during the festive season and beyond.