Will GST Cut Make Cars & Bikes Cheaper? Here’s What Jefferies Predicts

The Indian automobile industry may be headed for a demand revival as expectations build around a possible reduction in Goods and Services Tax (GST) rates, according to a recent note by Jefferies.

The government is widely expected to announce tax rationalisation measures next month, with two-wheelers and small passenger cars seen as the biggest beneficiaries, as stated in the report cited by ANI. 

Jefferies estimates that a GST rate cut—from 28% to 18% for most vehicles and from 12% to 5% for tractors—could bring down on-road prices by 6–8%, significantly improving affordability.

“Such a move could strengthen consumer sentiment and accelerate the recovery in auto sales,” the report said.

The proposal is expected to be financed by converting the current GST cess on items such as coal, tobacco, SUVs, and aerated drinks into GST revenues, while also broadening the tax net.

At present, two-wheelers face an effective tax rate of 28–31%, while small cars are taxed at 29–31%. If the new structure is implemented, both categories would see meaningful relief.

Large SUVs, currently taxed at 45–50%, may also benefit, with rates potentially dropping to around 40%. Tractors, meanwhile, stand to gain from a proposed reduction to 5%, though Jefferies cautioned that higher input costs could create an inverted duty structure, as per Jefferies. 

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

Hybrid vehicles could also receive a boost if their tax rates are aligned closer to electric vehicles (EVs), which are taxed at only 5% GST, rather than being treated on par with conventional internal combustion models.

Reflecting this optimism, Jefferies has raised its FY26–28 sales projections for two-wheelers and passenger cars by 2–6%, forecasting a compound annual growth rate (CAGR) of 10% for two-wheelers and 8% for passenger vehicles during FY25–28. Tractor volumes are projected to grow at 9% CAGR, while truck sales are expected to expand at a modest 3%.

The sector has been struggling with weak demand in recent months, with April–July registrations rising only 2–3% Year-on-Year (YoY). But Jefferies expects festive season sales to benefit from a mix of factors—anticipated GST cuts, recent income tax reliefs, and improved liquidity in the market.