Small cars are expected to see a major boost with the reduced tax rates under GST 2.0 regime.
The GST Council, on Wednesday, approved a significant reform of the GST structure. Dubbed as GST 2.0, the reset in tax rates is aimed at boosting domestic consumption at a time when the country is facing a 50 per cent tariff threat from the US. Like many other products and services, the automobile industry is also looking at a boost in business with the reformed and reduced GST rates.
Slated to be enforced from September 22, the restructured GST regime is expected to boost demand for small cars, a segment that has been witnessing shrinking sales numbers and dampened demand over the last couple of years, owing to multiple factors. While the entry-level consumers have stayed away from buying cars because of affordability, economic uncertainties, geopolitical tensions, low income growth, and inflationary pressures have also played vital roles in keeping the sales in this segment down.
Also Read : Bigger engines, higher tax: GST 2.0 slaps 40% duty on these cars, dubs them as luxury ones
The small car segment has traditionally been the backbone of the Indian passenger vehicle market. However, over the last few years, sales in this category have remained sluggish, affecting the growth pace. Now, with the reduced GST on small cars, the industry is expecting this segment to see a revival.
| Vehicle category | Old regime (GST + Cess) | Tax difference | New regime (GST 2.0) | Popular models to benefitted |
|---|---|---|---|---|
| Petrol, CNG, LPG cars with up to 1200 cc engine, up to 4,000 mm size | 29% | -11% | 18% | Alto K10, WagonR, Swift, Grand i10 Nios, i20, Tiago, etc |
| Diesel cars with up to 1500 cc engine, up to 4,000 mm size | 31% | -13% | 18% | Altroz, Venue, etc |
GST boost for small cars
Small cars less than four metres in length and engine capacity of under 1200 cc for petrol and 1500 cc for diesel will now attract 18 GST with effect from September 22, compared to the current regime, where the total tax incidence on these vehicles is between 29-31 per cent, comprising the 28 per cent GST and cess.
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This means, if there is an 11 per cent reduction in GST, the ex-showroom price of small cars will now come down by 12-12.5 per cent, as per the estimates of industry experts. This means, if you are planning to buy a car with an ex-showroom price of ₹500,000, prices will come down by ₹62,500 post September 22.
GST 2.0: Who will benefit?
With the tax reduction under the GST 2.0, auto manufacturers selling small cars will benefit. The obvious names are Maruti Suzuki, Hyundai and Tata Motors that sell popular models like Alto K10, S-Presso, WagonR, Swift, Dzire, Grand i10 Nios, i20, Tiago, Tigor, etc. These cars come powered by engines that are within the benefitting threshold. Also, the length of these cars is within the benefitting threshold.
Besides the auto OEMs, the customers, especially in the entry-level segment and first-time buyers who seek to buy smaller PVs, will benefit from this move. A certain chunk of the recurring car buyers, too, will benefit from this restructured GST regime.
Also Read : Small cars & two-wheelers to get cheaper as GST Council approves two-slab structure
GST 2.0: Why is it important for carmakers?
The Indian passenger vehicle market has traditionally been dominated by small cars. Even though the crossovers, SUVs and MPVs have started dominating the sales charts over the last few years, keeping pace with the global trend in favour of utility vehicles, the small cars still hold a large chunk of the country’s passenger vehicle market.
Carmakers manufacturing small passenger vehicles have been advocating for a reduced tax structure and support for these vehicles for a long time. The revamped GST structure comes as a response to that. With this move, along with the festive season-induced upbeat consumer sentiment, the automakers are expected to post a sales surge after a prolonged sluggish pace of sales.
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First Published Date: 04 Sept 2025, 11:21 am IST
