GST Rate Cut can impact on the Indian automobile sector could soon witness a major price correction, as Prime Minister Narendra Modi announced a new GST rate cut during his Independence Day 2025 speech. Under the proposed system, cars, SUVs, and two-wheelers may shift from the current 28% tax slab to an 18% slab, making vehicles more affordable for millions of consumers. The reforms are expected to be rolled out before Diwali 2025, turning the festive season into an attractive time for buyers.
GST Rate Cut: Two-Slab System: A Game-Changer
According to reports (New Indian Express, Hindustan Times Auto, Indian Express), the government is moving toward a simplified two-slab GST structure of 5% and 18%, while a 40% rate will continue for luxury and sin goods. This major tax overhaul aims to make compliance easier while reducing the cost burden on the middle class.
Impact on Cars and Two-Wheelers
Currently, passenger cars and two-wheelers attract 28% GST along with additional cess on certain categories. If moved to the 18% slab, experts estimate that vehicle prices could drop between 5–10%. For example, a car priced at ₹10 lakh could become cheaper by up to ₹1 lakh, depending on model and category. This reduction is expected to boost demand in the auto sector, which has been recovering steadily post-pandemic.
Benefits for Consumers and Industry
For consumers, this rate cut translates into lower on-road prices, reduced EMIs, and higher affordability for first-time buyers. The festive season has traditionally been the strongest period for automobile sales, and the proposed GST reform could act as a demand catalyst.
For the industry, including manufacturers and dealers, the move is being hailed as a game-changer. Lower GST rate cut is likely to accelerate inventory clearance, improve sales volumes, and provide relief to MSMEs operating in the auto supply chain.
Luxury Cars May Remain Expensive
While small cars and two-wheelers are expected to benefit, luxury cars and SUVs may continue to attract higher taxes. Reports suggest that the 40% slab may apply to premium categories, ensuring that revenue from high-end consumption remains intact.
Expert and Market Reactions
Industry bodies and market analysts have welcomed the announcement, calling it a “Diwali gift for the middle class.” Many believe this step could revive auto sales growth and improve India’s competitiveness in the global automobile market. Dealers also expect improved footfall and quicker decision-making by buyers once the revised GST slabs are notified.
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What This Mean For Buyer
The proposed GST reforms, if implemented by Diwali 2025, are set to benefit both consumers and the automobile industry. Cars and two-wheelers could become significantly cheaper, driving demand during the festive season. With PM Modi’s push for a simplified tax structure, the Indian auto market may be entering a new growth phase.