GST to Gearshift: How Tax Cuts Revved Up the Auto Market under PM Modi

As Prime Minister Narendra Modi celebrates his 75th birthday, one of the landmark economic reforms reshaping India’s economy is the rationalisation of indirect taxes through the Goods and Services Tax (GST). While GST touches every sector, its effect on the automobile industry has been particularly transformative, providing clarity, predictability, and a much-needed boost to both demand and investment.

Before GST, the auto sector navigated a complex web of excise duties, VAT, and multiple state-level cesses, creating inefficiencies and inflated vehicle prices. The 2017 introduction of GST streamlined these levies into a unified structure, simplifying compliance and reducing costs for consumers. Early GST cuts on small cars, two-wheelers, and commercial vehicles stimulated demand, especially in rural markets and urban middle-class segments. Input tax credits across the supply chain also encouraged investment in dealerships, logistics, and manufacturing.

Also Read: New GST Slabs From Sept 22: How Your Next Car Or Bike Could Get Cheaper | Republic World

Building on this foundation, the government recently implemented GST 2.0 reforms, overhauling the 28% taxation for four-wheelers. Effective September 22, 2025, small cars with petrol engines up to 1200 cc, diesel engines up to 1500 cc, and a size under four metres will now attract an 18% GST. This adjustment is expected to make vehicles more affordable across categories and further energize sales, benefiting both buyers and manufacturers.

Tax incentives on electric and hybrid vehicles, reducing GST from 12% to 5% in some cases, reinforce the government’s clean mobility push. Such flexible rate adjustments by the GST Council demonstrate a responsive approach that balances revenue needs with industrial growth.

For a sector that contributes over 7% to India’s GDP and employs millions, GST reforms have been a true gearshift—driving competitiveness, boosting affordability, and providing a predictable policy environment.

As PM Modi marks another milestone, the auto industry’s growth under GST exemplifies how targeted tax reforms can accelerate market demand, strengthen investment, and deliver tangible benefits for consumers.