GST 2.0: DRIVING LOWER COSTS, STRONGER SUPPLY CHAINS, AND GREENER MOBILITY

The reforms introduce a simplified GST structure aimed at making vehicles, including trucks for freight transportation more affordable

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India's automobile sector, a cornerstone of the economy contributing significantly to manufacturing, employment, and exports, received a major impetus through the 56th GST Council meeting on September 3, 2025. The reforms, which came into effect from September 22, 2025, introduce a simplified GST structure aimed at making vehicles, including trucks for freight transportation more affordable, stimulating demand, and enhancing competitiveness.

As highlighted in Union Minister of Commerce and Industry Piyush Goyal's address at the Federation of Automobile Dealers Associations (FADA)'s 7th Auto Retail Conclave on September 10, 2025, these changes underscore the government's commitment to expanding markets, strengthening supply chains, and building resilience in the sector.

According to ratings agency ICRA, the rationalisation of Goods and Services Tax (GST) is a well-timed and welcome move, which is expected to reinvigorate domestic consumption in the run up to the festive season amidst the risks posed by the steep US tariffs on India's exports.

SIMPLIFIED TAX REGIME

Prior to the reforms, the GST on automobiles was a complex 28 per cent base rate plus varying compensation cess (1-22 per cent), leading to effective rates as high as 50 per cent for luxury vehicles. This structure deterred affordability, especially for entry-level buyers, amid rising input costs and supply chain disruptions. The new “GST 2.0” regime streamlines this into fewer slabs, with reductions across segments: Trucks, which carry 65-70 per cent of India's goods traffic, form the backbone of the supply chain, and lower GST will reduce their capital costs, cutting freight rates per tonne-km.