Are GST Reforms Revitalizing India's Auto Sector to Attract Investments?

Simplified Tax Structure, Stronger Demand

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GST Council has cleared a major overhaul of India's automotive tax framework to cut four slabs to two from September 22, 2025. The move aims to ease taxation, eliminate cess complexities, and deliver better policy predictability for both manufacturers and consumers.

Reduced GST levels translate into lower-priced cars in all segments. Two-wheelers with an engine capacity of up to 350cc and small cars, for instance, will now cost less at 18% GST compared to the earlier 28%.

Large cars, which had the onus of a cess that took the effective tax rates to 50%, will be charged a flat 40% with no cess. Trucks, buses, and tractors have also been given considerable tax relief. This, the MHI says, will not only drive first-time buyers to make purchases but also drive replacement demand, with consumers upgrading to more fuel-efficient, newer models. This helps to drive the government's wider ambition for cleaner, sustainable mobility.

How Everyone Benefits

The reforms aim to have a ripple effect on the entire auto industry. Cheaper vehicles will soar volume sales, financially benefiting automakers, dealerships, and service providers. Ancillary sectors like tyres, batteries, glass, plastics, and electronics are also bound to demand more as production surges.

The industry, which already supports more than 3.5 crore direct and indirect jobs, will witness increased recruitment at dealerships, logistics networks, component suppliers, and unorganized sectors, including drivers and small garages. The government also anticipates better retail loan demand, which would benefit banks and enhance financial inclusion in smaller towns and semi-urban areas.

Sector-Specific Gains

Two-Wheeler