New Delhi — At its marathon 56th meeting held on September 3, 2025, the GST Council, led by Finance Minister Nirmala Sitharaman, delivered a pivotal reform for the automotive sector. Effective September 22, the new Goods and Services Tax (GST) structure slashes rates on small vehicles and standard auto parts while imposing steeper levies on luxury and high-capacity models — aiming to boost affordability and balance revenue.
What’s Changed in Auto GST Rates
- Reduced to 18%:
- Two-wheelers under 350cc
- Small cars (petrol up to 1,200 cc, diesel up to 1,500 cc, and length ≤ 4 m)
- Three-wheelers, buses, trucks, and ambulances
- Auto parts & accessories — uniform rate regardless of HS code.
- Increased to 40%:
- Luxury or large cars, including SUVs with engine capacity above 1,500 cc or more than 4 m in length
- Hybrids in large or premium segments
- Motorcycles above 350cc
- Also covers high-end vehicles like yachts, aircrafts, and personal-use helicopters
- Electric vehicles remain at 5% GST, preserving government’s clean mobility incentive.
These reforms are part of a shift to a simpler three-tier GST structure: 5%, 18%, and a demerit slab of 40% for luxury/gaming/sin goods.
Why It Matters
1. Boost for Middle-Income Buyers
Reducing GST on mass-market vehicles can significantly lower purchase prices, particularly for popular models like the Maruti Suzuki Alto, Honda Shine, and Tata Tiago. Industry experts expect increased affordability to spark demand.
2. Market Optimism
Auto stocks rallied sharply in response. M&M jumped ~8%, Eicher Motors by ~5.4%, and others like Hero MotoCorp, TVS Motor, and Maruti saw strong gains — marking confidence in demand recovery.
3. Smoothing Tax Confusions
Uniform GST on all auto parts at 18% simplifies tax procedures, eliminating classification disputes and making compliance easier for manufacturers and dealerships.
4. Economic Lift
Broader consumption changes — including cheaper vehicles and everyday goods — are projected to boost GDP by 100–120 basis points over the next 4–6 quarters.
What Consumers Can Expect
| Vehicle Type | GST Rate (Before → After) | Impact |
|---|---|---|
| Small cars (≤1,200 cc petrol, ≤1,500 cc diesel, ≤4 m) | 28% → 18% | Lower prices, accessible options |
| Two-wheelers under 350 cc | 28% → 18% | Cheaper scooters and bikes |
| Auto parts & accessories | 28% → 18% | Uniformity, easier compliance |
| Luxury/hybrid cars & >350 cc bikes | Higher/Varies → 40% | Higher cost for premium models |
| Electric vehicles | Unchanged at 5% | Strong green incentive continues |
Implementation & Broader Impact
- All revised GST rates will take effect from September 22, coinciding with Navratri, aiming to capitalize on festive demand.
- The Council’s next steps include setting up the GST Appellate Tribunal and streamlining filings with automated refunds and improved compliance mechanisms.
- While several states raised concerns about revenue loss (up to ₹1 lakh crore), the final decision was achieved by consensus without voting.
Big Picture
This GST overhaul marks a critical move toward GST 2.0 — a simplified taxonomy designed for equity, ease of business, and consumption-led growth. Alongside vehicle tax revisions, everyday essentials like food items, insurers, and personal care products also saw rate cuts. These policy changes, timed strategically before festival season, are aimed at revitalizing consumer spending and supporting economic expansion.