GST rate cut: Small cars set to gain the most from rate rationalisation

Small cars below 1500 cc in both petrol and diesel variants are expected to be the biggest gainers from the reduction in goods and services tax (GST), announced by the GST Council on Wednesday. GST rates could reduce up to 13% on such cars, while those above 1500cc will see tax reduction under 10% due to removal of the cess levied before.

Small cars, micro-SUVs, and compact SUVs—together accounting for nearly 60% of the domestic passenger vehicle market—are likely to benefit from a GST cut to 18% from the earlier 29-31% (including cess). This will be especially positive for players such as Maruti Suzuki and Tata Motors.

Larger cars, including sedans and bigger SUVs, will also see relief, with GST reduced to 40% from the earlier 45–50% range (including cess).

According to auto sector experts, overall vehicles see decent benefit of GST reduction as most of the categories have seen GST reduction except for motorcycles above 350cc, a negligible market in India.

“The GST cut on small cars under 1.2L is a game-changer—bringing real relief to consumers and firing up demand in the mass segment. With festive tailwinds from Navratri to Diwali, entry-level cars are set for a strong comeback,” Vivek Sharma, Principal analyst-Powertrain forecast, S&P Global mobility tells Business Today.

He says that this bold reform not only gives OEMs like Maruti Suzuki and Tata Motors a sharper edge, but also signals a new era where cleaner, compact powertrains become the mainstream choice.

“In fact, it could fast-track the rise of hybrids and efficient technologies—turning India’s dream of affordable, sustainable mobility into a festive reality. It’s not just a rate cut, it’s a reset for the small car market,” he adds.

Auto analysts expect two-wheeler OEMs and related ancillaries to be the key beneficiaries of these reforms, with the strong replacement base likely triggering pent-up demand.

Shailesh Chandra, President, SIAM, said: “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 said.

Calling it as a landmark GST rationalisation, Rajesh Jejurikar, ED & CEO - Auto and Farm Sectors, Mahindra & Mahindra Ltd. said it will have a far-reaching positive impact across the automotive and farming sectors.

“We also appreciate the continuation of the 5% GST rate on EVs, which is a critical enabler of India’s clean mobility vision. This measure will further accelerate the adoption of electric vehicles and reinforce India’s leadership in sustainable, green transportation,” he said.