The much-anticipated GST 2.0 regime has been announced, and most of the Indian auto industry is welcoming it with open arms. Now, GST was introduced in 2017 to simplify taxes. However, for the auto sector, it was not all good news, as the addition of Cess led to taxes on some cars reaching as high as 50 per cent. After a lot of back and forth, the government has now finally announced the new GST rates, this time more favourable to the auto sector.
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Under the new structure, all sub-4-metre cars with engines under 1200 cc (petrol) and 1500 cc (diesel) will now be taxed at 18 percent, down from 28 percent. Two-wheelers under 350 cc get the same benefit. However, two-wheelers above 350 cc will see a price hike, as GST on bigger two- and four-wheelers has gone up from 28 percent to a flat 40 percent, irrespective of size or engine. While that may seem steep, the 18–22 percent Cess on SUVs is gone, so instead of 46–50 percent, buyers now pay a uniform 40 percent. Electric vehicles continue with the 5 percent GST.
Small cars under 4 meters now get cheaper with GST down from 28 percent to 18 percent
Welcoming this initiative, Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM) said, “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. We also thank the Government of India for continuing with the GST rate of 5% on Electric Vehicles, which will help sustain the ongoing momentum towards sustainable mobility.”
He further added, “We are confident that the Government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.”
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Auto sector welcomes GST 2.0 as a big step toward affordability and demand growth
Industry expects, Saurabh Agarwal, Partner & Automotive Tax Leader, EY India, for the Auto sector, expressed similar sentiments. He said, “By making vehicles more affordable across all segments, this move will not only boost consumer spending but also simplify complex classification disputes that have long burdened the industry. The discontinuance of the cess is a particularly pragmatic step, which will provide much-needed support to a sector that is a vital contributor to our nation's GDP.”
However, he did mention that the automotive industry must now carefully reassess the financial impact of state incentives and subsidies, which are often linked to GST rates. “This may necessitate a renegotiation with state governments to address potential changes in costs and clawback periods,” he added.
Also Read: Electric Vehicles To Continue With Lowest GST Rates Across All Segments
Electric vehicle rates to stay unchanged with GST held steady at just 5 percent
Auto manufacturers, too, have welcomed this change in GST rates. Unsoo Kim, Managing Director, Hyundai Motor India, said, “The GST overhaul will directly benefit the automotive sector. The announced reforms align seamlessly with the Government’s commitment to Viksit Bharat and the Make in India initiative, encouraging domestic manufacturing and boosting demand across both urban and rural markets. Notably, 60 per cent of our ICE portfolio will now fall under the 18 per cent slab rate, with the remainder at 40 per cent.”
Also Read: GST Hiked To 40% On Motorcycles Above 350cc
Big SUVs now come under a flat 40 percent GST, but Cess charges are gone
Sharing his views, Anish Shah, Group CEO & MD, Mahindra Group, said, “The rationalisation measures will not only provide immediate relief to households but also strengthen key sectors such as automobiles, agriculture, healthcare, renewable energy, and MSMEs - all of which are vital to job creation and sustainable growth. The correction of long-pending inverted duty structures in critical industries is welcome.” At the same time, Rajesh Jejurikar, ED & CEO - Auto and Farm Sectors, Mahindra & Mahindra, said, “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.”
Bikes with engines bigger than 350 cc now come under 40 percent GST making them expensive
Two-wheeler manufacturers, with models under 350 cc engines, who fall under the 18 per cent GST bracket, lauded the initiative. Sudarshan Venu, Chairman, TVS Motor Company, said, “We applaud the government for taking consistent steps towards boosting growth and enhancing the growing middle class’s spending power - all towards realising PM’s vision of Viksit Bharat 2047. The GST tax cuts are a major move by the government to further turbocharge growth. It will significantly boost consumption across segments of society. For our industry especially, it’s a welcome move as it will help 2Ws become more accessible and also help those looking to upgrade.”
Ajinkya Firodia, Vice Chairman of Kinetic India, expressed similar sentiments, but added, “Our only humble request is that the electric vehicle (EV) sector continues to be kept in special focus. To ensure higher penetration of EVs, especially two-wheelers, we urge the continuation of supportive schemes so that this transformative sector does not face any adverse impact. EV adoption is critical for India’s sustainable growth and competitiveness.”
On the other hand, speaking for brands with models featuring engines bigger than 350 cc, Diego Graffi, Chairman and MD, Piaggio Vehicles Pvt Ltd, said, “The revised rates for premium segments should be reconsidered to ensure that the framework overall reflects a clear intent to establish simplicity and consistency across categories.” Nonetheless, he also appreciated the reduction of GST rates on two-wheelers below 350cc. “(It) will improve accessibility for a wider base of consumers and further support demand growth,” he added.
Beyond passenger vehicles, the farm and commercial vehicle segment has also benefited. GST on tractors, tyres, farm equipment and bio-pesticides has dropped to 5 percent, while motor vehicles for goods transport and three-wheelers now attract 18 percent instead of 28 percent. The new GST rates will be applicable from September 22, 2025.
