GST Cuts Could Slash Vehicle Prices by Up to 8%: A Game-Changer for India's Auto Industry

GST Cuts Could Slash Vehicle Prices by Up to 8%: A Game-Changer for India's Auto Industry

The Indian automobile industry is on the brink of a significant transformation as the government is poised to slash Goods and Services Tax (GST) rates on vehicles. This move, expected to be finalized in the upcoming GST Council meeting on September 3-4, 2025, could cut vehicle prices by as much as 6-8 percent, bringing much-needed relief to consumers and potentially reigniting demand across the sector.

Impact of GST Rate Reductions

The core of the reform involves reducing GST on most vehicles from the current 28 percent slab to 18 percent, while tractors might see rates cut from 12 percent to 5 percent. This restructured taxation is anticipated to have the greatest impact on two-wheelers and small passenger vehicles, which currently bear GST rates between 28-31 percent. Large SUVs, which attract combined GST and cess rates of 45-50 percent, could see these effective rates lowered to about 40 percent. Even commercial vehicles are expected to benefit from a possible reduction to 18 percent GST.

These cuts are projected to lower on-road prices, making vehicles more affordable for a broader section of consumers. Jefferies, an international brokerage, anticipates a surge in industry volumes due to these reforms, estimating a 10 percent compound annual growth rate for two-wheelers and 8 percent for passenger vehicles over FY25-28.

Industry Performance and Market Response

Despite the positive outlook from GST rationalization, the automobile industry has faced mixed signals in recent months. Vehicle registrations between April and July 2025 showed just 2-3 percent growth, with truck registrations declining slightly. However, August 2025 witnessed encouraging signs, with TVS Motor Company reporting record monthly sales and Hero MotoCorp gaining market momentum.

The anticipation of GST rate cuts has led some buyers to postpone purchases, impacting immediate sales negatively. Industry bodies like the Federation of Automobile Dealers Association (FADA) have therefore urged the government to expedite the implementation of new GST rates before the festive season to prevent further sales dips.

Market Leaders and Beneficiaries

The brokerage Jefferies has identified key players likely to benefit the most from this demand revival. TVS Motor and Mahindra & Mahindra (M&M) stand out with projected earnings growth rates of 27 percent and 19 percent respectively for FY25-28. Maruti Suzuki remains a pivotal industry bellwether, expected to capitalize on increased affordability in the small car segment. Hero MotoCorp’s outlook has been upgraded due to improved demand prospects, whereas Hyundai and Tata Motors face cautious forecasts.

The Road Ahead: GST Council Meeting

The upcoming 56th GST Council meeting holds the key to the industry's future. Stakeholders widely expect the council, led by Finance Minister Nirmala Sitharaman, to approve and implement these GST rationalizations swiftly. Prompt action is critical, as delays may dampen festive sales prospects and inhibit the pent-up consumer demand from materializing.

Conclusion

The prospective GST rate cuts stand to be a significant catalyst for India's automobile industry, driving affordability and stimulating demand across segments. If implemented promptly, these reforms could propel the next growth phase for the sector, benefiting manufacturers, dealers, and consumers alike. The industry watches closely as the GST Council convenes this week, hopeful that the awaited tax relief unlocks the potential for a robust festive sales season and sustained long-term growth.