A major overhaul of the Goods and Services Tax (GST) is set to reshape the Indian automotive market, bringing price reductions for some of the best-selling SUVs and hatchbacks. The GST Council has approved these changes, which will take effect on September 22, 2025. The revised tax structure aims to simplify the tax slabs and impact vehicle pricing across the country.

Winners: Small Cars and Entry-Level Motorcycles

The new GST regime favors small cars and entry-level motorcycles. Petrol, LPG, and CNG cars with engines below 1,200 cc and diesel cars up to 1,500 cc, provided they are not longer than 4,000 mm, will now attract 18% GST instead of the current 28%. This reduction is expected to lower the sticker prices of popular models like the Maruti Swift, WagonR, Hyundai i20, Tata Altroz, Renault Kwid, and Hyundai Exter. Industry experts anticipate that the ex-showroom prices of small cars may decline by 12–13% because of this duty cut.

Motorcycles with engine capacity below 350 cc will also be taxed at a reduced rate of 18%, compared to the previous 28%. This change benefits mass-market bestsellers like the Hero Splendor, Honda Shine, TVS Apache, and Bajaj Pulsar range, as well as models like the Royal Enfield Classic and Hunter 350.

Commercial Vehicles and Hybrids

The GST reduction extends to commercial vehicles, with three-wheelers, buses, trucks, and ambulances now taxed at 18% instead of 28%. Small hybrid cars will also benefit from the lower tax rate, while electric vehicles will continue to enjoy the lowest slab of 5%. Passenger transport vehicles that can carry 10 or more people, including the driver, will also see a decrease in GST from 28% to 18%.

Losers: Larger Cars and High-End Motorcycles

While small cars and entry-level motorcycles benefit from the GST overhaul, premium buyers will face higher taxes. All mid-size and large cars (those exceeding 1,200 cc petrol or 1,500 cc diesel engines, or measuring longer than 4,000 mm) will now attract a flat 40% GST. This category includes popular SUVs like the Hyundai Creta, Kia Seltos, Tata Harrier, Mahindra XUV700, and Toyota Fortuner. Similarly, motorcycles above 350 cc will also face a 40% levy, potentially increasing the prices of models like the Royal Enfield Himalayan 450, KTM Duke 390, Harley-Davidson X440, and Triumph Speed 400.

Market Impact and Industry Response

The GST reform is expected to boost sales of sub-4 meter petrol and diesel cars, providing relief to buyers during the festive season and reversing declines caused by rising prices and the increasing popularity of used cars. Two-wheelers and compact vehicles are also likely to benefit from lower GST rates.

However, luxury and premium EVs face higher taxes, which could slow growth in India's high-end electric segment. Despite their global scale, companies like Tesla and BYD may see a further impact on demand for their imported models because of the revised GST rates.

Shailesh Chandra, President of SIAM, has welcomed the government's decision to reduce the GST on vehicles, stating that it is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector. He believes that making vehicles more affordable, particularly in the entry-level segment, will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility.