AUTO SECTOR SHIFTS GEARS WITH GST 2.0

India's landmark GST 2.0 reform has ignited fresh momentum in the automobile industry, slashing taxes on small cars and simplifying rates for larger vehicles

- Prashant Singh

The year 2025 will be remembered as historic for several reasons, particularly for the Indian automobile industry. The Prime Minister’s announcement of new GST reforms on August 15 sparked widespread optimism—most notably among Original Equipment Manufacturers (OEMs) with small car offerings that stand to benefit the most from the revisions. Often compared to Japan's Kei car movement, which motorised the nation with small, fuel-efficient, tax-advantaged vehicles, GST 2.0 is being hailed as one of the most transformative policy changes in India over the past decade.

The implementation of GST 2.0 aims to reshape market dynamics by significantly lowering taxes on small cars and simplifying rates for larger vehicles. This creates a predictable tax environment, boosting affordability and reigniting consumer demand, particularly in Tier-2 and Tier-3 cities.

New GST on small cars

With GST on small cars reduced from 28 per cent to 18 per cent, vehicles in the affordable segment have become significantly cheaper, giving a strong push to first-time buyers and expanding household mobility. The revised GST rates apply to petrol cars with engines under 1,200 cc and up to 4 metres in length, as well as diesel cars with engines under 1,500 cc and not exceeding 4 metres.

Industry leaders believe the revision will stimulate sales in smaller cities and towns, where compact cars dominate the market, and generate positive ripple effects for dealerships, service centres, drivers, and auto-finance firms. “The Government's recent GST restructuring is a welcome move that will give a strong boost to the auto industry while directly benefiting customers. Coming right at the start of the festive season, it provides the perfect impetus for car buyers,” Piyush Arora, CEO & MD, Skoda Auto Volkswagen India.

Effect on big cars and SUVs