The Indian automobile industry is set for a major transformation with the upcoming GST cut on small cars. According to government sources, small hatchbacks will now be placed under the 18% tax slab, down from the current 28%, making them significantly cheaper for buyers.
During his Independence Day speech, Prime Minister Narendra Modi confirmed that GST will be simplified into two slabs — 5% and 18%. This reform is expected to be implemented before Diwali 2025 and could revive the struggling small car segment, which has faced declining sales for the past five years.
Impact On Small Cars
Currently, small cars attract 28% GST + 1% cess, while large SUVs are taxed at 43–50%. Under the new system, cars measuring under 4 metres in length with engine capacity of up to 1,200 cc (petrol, CNG, LPG) will fall under the 18% GST slab.
This tax cut could lower ex-showroom prices by 12–13%, translating to savings of ₹20,000–₹25,000 for buyers, depending on the model.
Before vs After GST: Price Impact On Small Cars
| Category | Current GST Slab | Proposed GST Slab | Approx. Price Impact |
|---|---|---|---|
| Small Cars (<4m, ≤1200cc) | 28% + 1% Cess | 18% | 12–13% cheaper (₹20,000–₹25,000) |
| Large SUVs | 43–50% | 40% | 3–10% cheaper |
| EVs | 5% | 5% (No Change) | No change |
Why This Reform Matters
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Boost for affordability: Entry-level buyers have been priced out in recent years.
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Sales revival: The small car segment saw a 13% YoY decline in FY25, dropping to 1 million units.
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Positive for hatchbacks & micro-SUVs: Models like Tata Punch and Hyundai Exter will become more affordable.
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Balanced taxation: Luxury SUVs and cars will still pay higher rates, but slightly lower than before.
Expert Opinion
“If there is an 11% reduction in GST, the ex-showroom price of small cars will come down by 12–12.5%. Even a ₹20,000–25,000 cut will strongly improve consumer sentiment,” said VG Ramakrishnan, Managing Partner at Avanteum Advisors.
Conclusion
The GST cut on small cars could be the much-needed boost for India’s auto industry. With prices set to fall by up to 13%, small hatchbacks may once again become the preferred choice for budget-conscious buyers. The reform is expected to be rolled out before Diwali, making it a festive-season gift for car buyers.
FAQs On GST Cut For Small Cars
Q1: When will the new GST rates on small cars be implemented?
The GST reform is expected to be rolled out before Diwali 2025, as announced by the government.
Q2: How much will buyers save on small cars after the GST cut?
Buyers can expect a 12–13% price reduction, translating to savings of ₹20,000–₹25,000 depending on the car model.
Q3: Which cars qualify for the new 18% GST rate?
Cars under 4 metres in length with engines up to 1,200cc (petrol, CNG, LPG) will benefit from the reduced tax slab.
Q4: Will electric vehicles (EVs) get cheaper under the new GST structure?
No, EVs will continue to attract 5% GST, so their prices will remain unchanged.
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