Why new GST rates are a shot in the arm for auto industry
The decision, effective September 22, will see a tax cut from 28 pc to 18 pc on small vehicles and motorbikes up to 350cc, benefiting consumers
India’s automotive industry got a major boost after the Goods and Services Tax (GST) Council on Wednesday (September 3) announced a complete overhaul of the tax regime. The council approved restricting slabs to five and 18 per cent, effective from September 22, the first day of Navratri, from the current four slabs to make things simpler.
A special 40 per cent slab was proposed for a select few items, such as high-end cars.
The decision, according to experts, would give the auto sector, an important part of capital goods sector, a strategic boost, especially ahead of the festive season through to Diwali. Union Finance Minister Nirmala Sitharaman said the decision to slash the consumption tax was taken unanimously by the council that also features ministers from the states. She said the reform was not only about rationalising rates but also about structural reforms.
Also read: Small cars, bikes up to 350 cc to get cheaper as GST reforms kick in
What vehicles benefit
Under the reformed regime, petrol, LPG (liquefied petroleum gas) and CNG (compressed natural gas) vehicles of less than 1,200 cc (cubic capacity) and not more than 4,000 millimetres of length, and diesel vehicles of up to 1,500 cc and 4,000 mm length would be bracketed in the 18 per cent rate instead of the current 28 per cent.
Motorcycles powered by up to 350 cc engines would also be taxed at a lower GST of 18 per cent, 10 points lower than the current 28 per cent.
High-end vehicles, bikes to face 40% GST
All vehicles having more than 1,200 cc engines and measuring more than 4,000 mm, racing cars, and motorcycles above 350 cc would have a levy tag of 40 per cent. It is to be seen how luxury automakers take this change and react.
Major gain for EVs
Electric vehicles (EVs) will be charged at five per cent.
The EV sector stands to make major gains with the concessional GST rate, ensuring that the new-age vehicles are not only affordable but that also support the country's green-mobility mission. The industry would wait and watch to see how the sale of the conventional small vehicles matches that of the EVs after the GST rationalisation and whether it affects people's tendency to adopt to the EV technology.
Also read: Carbonated soft drinks to become costlier with GST rate hiked to 40 pc
Besides, GST on auto components was also reduced to 18 per cent from 28 per cent. This could simplify compliance and bring down costs for both manufacturers and suppliers.
Auto stocks surge
On Thursday (September 4) morning, auto stocks witnessed a 2.2 per cent surge to the highest point in nearly 11 months after the government’s decision came on Wednesday. The stocks had in fact started rallying as much as six per cent ahead of the all-important council meeting.
Automobile shares emerged as the leading sectoral gainers on the benchmark Nifty 50, which was trading 0.7 per cent higher. The BSE auto index climbed 1.70 per cent to 58,712.10.
The majority of stocks on the automotive index were trading positively, with Mahindra and Mahindra and Eicher Motors at the forefront of the gains. The stocks increased by eight per cent and 5.39 per cent, respectively.
Also read: GST reforms: Life insurance and health insurance premiums to come down
Maruti Suzuki’s shares went up by 0.6 per cent, Hyundai Motor India’s by one per cent, Hero MotoCorp by over 1.3 per cent and TVS Motor by 1.7 per cent.
Shares of TVS Motor Company climbed 4.2 per cent and Hero MotoCorp by 3.56 per cent on the BSE.
The stock of MRF rallied 3.39 per cent, Bajaj Auto edged higher by over 2.5 per cent, Apollo Tyres 2.49 per cent and Tata Motors went up by two per cent.
In the equity market, the 30-share BSE Sensex jumped 888.96 points to 81,456.67 in opening trade. The 50-share NSE Nifty surged 265.7 points to 24,980.75.
How has the industry reacted?
The GST reform has brought an air of satisfaction in the country’s auto industry, which has otherwise dealt with a slowdown.
Mercedes-Benz India Managing Director (MD) and Chief Executive Officer (CEO) Santosh Iyer hailed the government in a statement and said it listened to the “automotive industry’s long-standing wish list of rationalising GST rates”.
He called the revision a move in the right direction, and one that will boost consumption and lend momentum to the automotive industry, which he referred to as the "pulse" of the Indian economy.
Also read: GST 2.0 in bullet points: All you need to know about new tax reforms
“We are thankful to the Government for keeping the GST rate for BEVs unchanged, ensuring faster transition to a decarbonised future, while reducing oil imports,” Iyer said.
Hisashi Takeuchi, MD and CEO of Maruti Suzuki India, said in an interview to Business Today TV that India’s automobile sector could witness a strong revival in the second half of 2025, thanks to the GST reforms.
Mahindra Group Chairman Anand Mahindra also appreciated the move, saying in a post on X that “more and faster reforms are the surest way to unleash consumption and investment”.
Also read: Centre rolls out new GST regime: Only 5 pc and 18 pc slabs from Sep 22
He said that would “expand the economy and amplify India’s voice in the world”. Mahindra also recalled seer Swami Vivekananda to quote him, “Arise, awake, and stop not till the goal is reached.” He also urged for more reforms.
We have now joined the battle…
— anand mahindra (@anandmahindra) September 3, 2025
More and faster reforms are the surest way to unleash consumption and investment.
Those, in turn, will expand the economy and amplify India’s voice in the world.
But let’s remember the famous exhortation of Swami Vivekananda:
“Arise, awake, and… https://t.co/rDoRtjsCw1
Dr. Anish Shah, Group CEO & MD, Mahindra Group, said in a statement that the “next-generation GST reforms” mark a defining moment in the country’s quest towards a simpler, fairer and more inclusive tax system.
“At Mahindra, we view these reforms as transformative. They simplify compliance, expand affordability, and energise consumption, while enabling industry to invest with greater confidence. This bold step is in line with the vision articulated by the Hon’ble Prime Minister of building a citizen-centric, future-ready Bharat,” he added.
Also read: Relief for farmers as GST rates slashed for dairy products, farm equipment, fertilisers
Gaurav Vangaal, associate director for Light Vehicle Production Forecast at S&P Global Mobility, said the reduction of the GST rates for small cars is a “strategic boost” for the auto sector, especially with the festive season approaching, Autocar Professional reported. He also said that besides reviving the entry-level passenger vehicle category, the decision would help realise the potential for affordable innovation in the sub-4m segment, the report added.
Sailesh Chandra, president of Society of Indian Automobile Manufactures (SIAM), welcomed the decision taken before the festivities and said it was a timely one to bolster the consumers and revive the automotive sector in India. He said the first-time buyers and middle-income families would benefit. He also thanked the government for persisting with a five per cent rate on the EVs.
Also read: Diwali comes early: Council slashes GST on everyday items; here is the full list
Hailing the decision to bring all auto components under a uniform rate, Automotive Component Manufacturers Association of India (ACMA) Director General Vinnie Mehta said, “ACMA welcomes the government's decision to bring all auto components under a uniform 18 per cent GST slab -- a long-standing recommendation of the industry.”
Dismal show
India's passenger vehicle sales fell 1.4 per cent to 10,11,882 units in the first quarter of the current fiscal from 10,26,006 in the corresponding quarter of the previous fiscal, SIAM said in mid-June.
Total two-wheelers sales also plummeted by 6.2 per cent to 46,74,562 units during the April-June quarter compared to 49,85,631 units in the period a year ago. The commercial vehicle segment saw a marginal 0.6 per cent decline in sales to 2,23,215 units in the June quarter of the current fiscal from 2,24,575 units in the first quarter of the last fiscal.