GST Rates Reduced On Vehicles | Public Ka Kahan Fayda Kahan Nuksan!
TL;DR
- Small Cars & Bikes: Now in 18% GST slab (was 28%), saving buyers up to ~10–13% on price.
- Electric Vehicles: Remain at 5% GST, regardless of segment.
- Luxury Vehicles & Bikes: Moved to a new 40% slab (petrol cars >1200cc, diesel >1500cc; bikes >350cc).
- Commercial/Farm: Trucks, buses, three-wheelers cut to 18%; tractors & farm machinery to 5%.
- Auto Parts: Uniform 18% GST on all spares and tyres.
56th GST Council Meeting
The GST Council’s big September 2025 revamp slashed tax rates on everyday vehicles but hiked them on high-end models. With effect from Sept 22, India moved to just two main GST slabs (5% and 18%), plus a 40% “sin/luxury” bracket. That means most common cars, bikes, and parts just got much cheaper, even as premium SUVs and big-engined bikes become relatively costlier.
Here is a segment-wise, detailed breakdown of how each segment will be affected.
Two-Wheelers
Under 350cc Motorcycles:
Motorcycles with engines ≤350cc now face 18% GST instead of 28%, resulting in 12-13% price reduction.
Benefiting (popular) Models:
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Hero Splendor, Honda Shine, Bajaj Platina
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Royal Enfield Classic 350, Bullet 350, Hunter 350
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Yamaha R15, MT-15, FZ25
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TVS Apache series, Jupiter scooters
Above 350cc Motorcycles:
Premium bikes now face a 40% GST rate, up from the previous effective rate of 31% (28% GST plus 3% cess).
Affected (popular) Premium Models:
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Royal Enfield Himalayan 450, Interceptor 650, Continental GT 650
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KTM 390 series (Duke, RC, Adventure)
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Triumph Speed 400, Scrambler 400
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Harley-Davidson X440
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Honda H'ness CB350 variants above 350cc
SUVs and Luxury Cars
While larger cars and SUVs now face a 40% GST, they're actually becoming 5-10% cheaper due to the removal of cess.
Previous Tax Structure:
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28% GST + 17-22% compensation cess = 45-50% total tax burden
New Structure:
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Flat 40% GST with no additional cess
Popular SUVs Getting Cheaper:
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Hyundai Creta, Kia Seltos
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Tata Harrier, Safari
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Mahindra XUV700, Scorpio-N
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Toyota Fortuner, Innova HyCross
Luxury Cars Also Benefit:
Mercedes-Benz, BMW, Audi models previously taxed at nearly 50% will now face flat 40% rate, making them 8-10% more affordable.
Electric Vehicles
Electric vehicles continue to enjoy the 5% GST rate, unchanged from the previous structure. This maintains the government's push toward sustainable mobility while other segments see restructuring.
Commercial Vehicle
Three-wheelers, buses, trucks, and ambulances all benefit from the reduced 18% GST rate (down from 28%). Auto parts across all categories now attract a uniform 18% rate, simplifying the complex classification system.
Market Reaction
The stock market responded enthusiastically, with the Nifty Auto index surging over 2%. Key performers included:
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Mahindra & Mahindra: Up 6-8%
Eicher Motors: Gained 4-5%
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Escorts Kubota: Jumped 13.5%
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Maruti Suzuki, Tata Motors, Hero MotoCorp: Rose 1-3%
Industry experts predict a 10-20% demand spike in affected segments.
Industry Response
SIAM President Shailesh Chandra called it a "timely move to inject fresh momentum into the Indian automotive sector". Mercedes-Benz India's Santosh Iyer praised the move as "progressive" and a step in the right direction.
BMW Group India's Hardeep Singh Brar highlighted the importance of clarity for consumer confidence, noting that uncertainty had caused potential buyers to adopt a wait-and-watch approach.
Implementation Challenges and Transitional Issues
The industry faces concerns about the unutilized compensation cess on existing inventory. Dealers currently hold over 600,000 units in stock (55+ days of inventory), potentially creating working capital challenges without proper transitional mechanisms.
FADA CEO Saharsh Damani emphasized the need for "explicit transition of existing cess balances into usable credits" to ensure smooth implementation.
Strategic Implications: Winners and Losers
Clear Winners:
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Maruti Suzuki: Dominant in the small car segment
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Hero MotoCorp: 94% of portfolio benefits from rate cuts
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Mahindra & Mahindra: Benefits from both PV and tractor rate reductions
TVS Motor, Bajaj Auto: Strong presence in the sub-350cc segment
Facing Challenges:
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Royal Enfield: Premium models above 350cc face higher taxes
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KTM India: 390 series and above affected
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Premium motorcycle importers: Additional burden on already expensive bikes
What Should Consumers Do?
For Small Car Buyers:
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Wait until September 22 for maximum savings
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Popular models could see ₹40,000-₹80,000 price drops
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Perfect timing for festive season purchases
For Premium Motorcycle Enthusiasts:
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Buy before September 22 if considering bikes above 350cc
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Models like Royal Enfield 650s, KTM 390s will become costlier
For SUV/Luxury Car Buyers:
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Prices will actually decrease despite higher GST rates
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Luxury car prices could drop by ₹2-7 lakhs, depending on modelyoutube
Long-term Market Impact
This reform represents more than just tax adjustments; it's a strategic realignment of India's automotive market. Small cars and entry-level motorcycles become more accessible to first-time buyers and middle-class families, potentially reversing the declining market share of compact vehicles.
The simplified tax structure eliminates classification disputes and compliance complexities that have long burdened the industry. With uniform rates across categories and the removal of cess, manufacturers can focus on product development rather than tax optimization.
Rural markets stand to benefit significantly, with tractors and agricultural equipment also receiving GST cuts to 5%. This comprehensive approach could drive both urban and rural demand recovery.
The Bottom Line
Finance Minister Sitharaman's description of this as a "historic Diwali gift" appears well-founded. The reform balances affordability for mass-market products with continued luxury taxation, while maintaining EV incentives and supporting commercial vehicle operators.
For consumers, the message is clear: small cars and commuter motorcycles have never been more affordable, while premium vehicles, despite higher tax rates, are becoming cheaper due to cess removal. The timing—just before the festive season—couldn't be better for the automotive industry's recovery.
As India moves toward GST 2.0, this automobile sector overhaul signals the government's commitment to consumption-led growth while maintaining the delicate balance between revenue generation and economic stimulus. The next few months will reveal whether this bold reform achieves its intended impact on demand revival and market dynamics.
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