In a move widely welcomed by India’s automobile sector, the government has finally addressed a key industry request — a reduction in GST rates on cars to make personal mobility more accessible.
Despite being the world’s third-largest car market, India’s vehicle penetration remains low, with only 32-34 cars per 1,000 individuals.
At its 56th meeting on Wednesday, the GST Council announced a significant reduction in the tax rate for small cars, bringing it down from 28% to 18%. Larger vehicles, including SUVs, will now fall under a revised 40% GST slab, with the earlier additional cess removed, lowering the overall tax burden.
Electric vehicles remain in the lowest GST category at 5%. Additionally, all auto components, regardless of vehicle type, will uniformly be taxed at 18%.
Saurabh Agarwal, partner and automotive tax leader at EY, has been quoted in a section of the media saying, “This revision is a double win — it not only improves affordability but also removes long-standing confusion around vehicle classification. The elimination of cess is a timely support measure for an industry that plays a pivotal role in driving economic growth.”
The council has clarified that small cars are defined as those under four metres in length, equipped with petrol/CNG/LPG engines below 1,200 cc or diesel engines under 1,500 cc. Any vehicle exceeding these dimensions and engine capacities will attract the new 40% rate.
Shailesh Chandra, president of the Society of Indian Automobile Manufacturers (SIAM), has been quoted saying, “This proactive policy shift is a welcome relief for buyers and manufacturers alike. By lowering costs for entry-level models, it empowers first-time buyers and middle-income households, thereby expanding access to personal transportation.”
With these changes, the government aims to revitalize consumer interest and give a much-needed push to the country’s automotive ecosystem — especially in the mass market segment.
Also Read: GST Council Rolls Out Major Reforms: Two-Slab Structure, Steep Rate Cuts https://www.vibesofindia.com/gst-council-rolls-out-major-reforms-two-slab-structure-steep-rate-cuts/
