Shifting Gears

After a weak FY26 for the automobile sector, the new GST regime may boost buying sentiment, say analysts

- By ANUBHUTI MATTA

PRIOR TO THE FESTIVAL SEASON, August saw passenger vehicles (PV) sales decline as buyers stalled their purchasing decision in anticipation of the Goods & Services Tax (GST) rate cut. Following Prime Minister Narendra Modi's August 15 announcement on the rationalisation of GST, the wait-and-watch situation ended on September 3, when the council revised the tax slabs for various sectors, including automobiles.

FY26 started on a weak note for the industry. After the first four months of FY26, the domestic two-wheeler segment was down 4 percent year-on-year, while PVs were down 1 percent and commercial vehicles remained flat, states Aniket Mhatre, senior vice president, Institutional Research Analyst-auto and auto components, Motilal Oswal Financial Services.

“Therefore, the GST cut rationalisation was a much-needed booster shot for the sector,” says Mhatre. “Since the government has ensured that the rationalisation happens before the festive season, we expect to see a revival in sector demand from now on.”

As per the announcement, effective September 22, there is a reduction in GST from 28 percent to 18 percent on three-wheelers, ambulances, motorcycles up to 350 cc, and new pneumatic tyres. It also applies to small passenger cars, including LPG, petrol and CNG-driven cars with an engine capacity not exceeding 1,200 cc and length not more than 4,000 mm. Even diesel cars not more than 1,500 cc and not longer than 4,000 mm are included in the same tax slab.