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GST cut boosts small vehicles ahead of India’s festive season

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BusinessHonor - GST Cut Fuels Small Vehicle Sales This Festive Season

Business Honor
04 September, 2025

GST reductions on small cars, bikes enhance affordability, driving demand and industry growth.

The GST Council lowered the tax rate on small automobiles and motorcycles under 350cc from 28% to 18%, which is a substantial decrease. This adjustment which was announced by Finance Minister Nirmala Sitharaman will go into effect on September 22nd, right before the holidays. Larger and luxury vehicles will now be taxed at 40%, but with the cess removed, the overall tax burden has decreased. The goal of this action is to increase affordability while improving demand in the automotive industry.

Maruti Suzuki recently reported a decline in small car sales as dealers awaited this tax relief. Hyundai, the country’s second-largest carmaker, saw stable sales with a slight drop but increased exports. The Society of Indian Automobile Manufacturers (SIAM) President, Shailesh Chandra, commended the decision, stating that it will particularly benefit the middle class and people who buy for the first time by lowering the cost of automobiles. Hyundai’s Managing Director, Unsoo Kim, said 60% of their internal combustion engine (ICE) vehicles will benefit from the new 18% tax rate. He underlined how the reforms support the government’s making in India initiative and promotes growth in both urban and rural markets. The 5% GST charge will remain applicable to electric cars (EVs).

Santosh Iyer, CEO of Mercedes-Benz India showed gratitude to the government for supporting this rate and recognized its importance for India's shift to sustainable mobility. Shailesh Chandra, Managing Director of Tata Motors, described the measures as a step toward easier life and business, repeating India's commitment to cheap, clean transportation. Rural and urban consumers benefited from the GST reduction for two wheelers under 350cc which went from 28% to 18%. Pawan Munjal, Executive Chairman of Hero MotoCorp praised the action and said it was essential for accessibility and economic development in these areas.