Next-Generation GST Revisions May Lead to Price Reductions for Passenger Vehicles and Motorcycles
India's Upcoming GST Reforms to Lower Tax Burden on Mass-Market Cars and Two-Wheelers
India is set to roll out new taxation norms by Diwali this year, which could result in a revision of prices around the end of October or November. The planned GST reforms, scheduled for late 2025, aim to simplify the Goods and Services Tax (GST) slabs, primarily reducing them to 5% and 18%.
The finance ministry expects the GST Council to discuss the recommendations of a Group of Ministers (GoM) in the upcoming meeting. One of the key impacts of these reforms on mass-market cars and two-wheelers is a potential reduction in the tax burden.
Currently, automobiles are generally taxed at the highest GST slab of 28%. The reform aims to reduce complexity by shifting most goods from 28% to 18%, which likely includes many mass-market cars and two-wheelers. Smaller two-wheelers and low-cost cars, which may have been closer to the 12% slab, could see their GST reduced to 5%, making them more affordable to the common buyer.
A new 40% GST slab will be introduced for "sin goods" (luxury and demerit goods), but mass-market vehicles are unlikely to fall under this higher rate. Alongside rate rationalization, the government aims to simplify compliance and speed refunds, which could further benefit auto manufacturers and dealers.
The GST revamp aims to boost the economy by making more goods accessible for the masses. It also aims to ease the doing of business and boost trade for Micro, Small, and Medium Enterprises (MSMEs). The intended benefits of the GST revamp are expected to be substantially realized within the current financial year.
In addition to the automobile sector, the reduction in taxes will help reduce prices for home appliances and other electronic items. The new GST regime may continue with the existing tax structure for luxury cars. The government is likely to continue to apply the compensation cess on passenger vehicles.
Every effort will be made to facilitate early implementation of the new taxation norms. The GST revamp is expected to stimulate growth in the automobile sector from late 2025 onward, making these vehicles more affordable for consumers. Details for exact product classification and specific vehicle segments will emerge as the GST Council finalizes notifications.
The implementation of India's upcoming GST reforms may result in a decrease in the tax burden for mass-market automotive products such as cars and two-wheelers, as many of these goods could potentially be shifted from the 28% slab to 18%. On the other hand, smaller two-wheelers and low-cost cars, currently closer to the 12% slab, might see their GST reduced to 5%, making them more affordable.
