Car Prices May Drop By Rs 36,000, Here’s How GST Reform Will Change Buying In 2025
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Car Prices May Drop By Rs 36,000, Here’s How GST Reform Will Change Buying In 2025
Car Prices May Drop By Rs 36,000, Here’s How GST Reform Will Change Buying In 2025, says News18.com. The Group of Ministers (GoM) formed by the GST Council has approved a tax rationalisation plan that will lower the GST rates on vehicles. If approved, all ICE passenger cars, including small cars and two-wheelers, would move from 28 percent to 18 percent GST. Luxury vehicles may shift to a separate 40 percent slab with cess adjustments. Maruti Suzuki, Hyundai and Tata Motors are expected to gain the most as they sell high volumes of small cars. Hero MotoCorp, Honda, TVS and Bajaj will see strong benefits thanks to their popular scooter and motorcycle models. One key concern is the bundling of vehicles with accessories, insurance, extended warranty, and service packages, and may need to be treated as a “composite supply” under GST law. Ambiguity in classification and litigation could lead to a ‘grey grey area’.
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News18.com
Last Updated: August 22, 2025, 11:04 IST
The GST Council’s Group of Ministers (GoM) has proposed a major reform—removing the 12% and 28% slabs and retaining only two rates: 5% and 18%.
(Image for representative purposes)
This festive season, the Indian automobile industry is set for a major price drop.
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The Group of Ministers (GoM) formed by the GST Council has approved a tax rationalisation plan that will lower the GST rates on vehicles, as per Money Control.
What Is GST on Cars?
GST (Goods and Services Tax) is a single tax that replaced excise duty, VAT and other levies. Cars fall under GST without exemptions, except for vehicles designed for the physically disabled. Used cars from unregistered dealers are also outside its scope.
Currently, most cars attract a 28 percent GST, plus a compensation cess of up to 22 percent depending on size and engine capacity.
Small petrol cars pay about 29 percent, while SUVs are taxed up to 50 percent. Electric vehicles stand out with the lowest rate of just 5 percent, encouraging green mobility, as per Clear.
What’s Changing in 2025?
The GST Council’s Group of Ministers (GoM) has proposed a major reform—removing the 12 percent and 28 percent slabs and retaining only two rates: 5 percent and 18 percent. If approved, this would mean:
All ICE passenger cars, including small cars and two-wheelers, would move from 28 percent to 18 percent GST.
Luxury vehicles may shift to a separate 40 percent slab with cess adjustments.
EVs will continue to enjoy the 5 percent slab.
This reduction is expected to directly bring down ex-showroom prices, which in turn lowers the overall on-road price.
How Will Car Prices Be Impacted?
According to industry estimates:
Entry-level cars could become cheaper by Rs 30,000 – Rs 36,000.
Two-wheelers may see a price drop of around Rs 6,000 – Rs 7,000.
Mid-sized cars could see moderate relief, while luxury cars might not benefit as much if a 40 percent slab is introduced.
In a price-sensitive market like India, these cuts could spur demand, making cars more affordable for first-time buyers.
What Are the Benefits of GST for the Automobile Sector?
Consumers: Lower overall tax burden and more predictable car prices.
Dealers & Importers: Ability to claim input tax credit on taxes already paid, reducing overheads.
Manufacturers: Lower manufacturing costs as excise duty is merged into GST, and credits can be claimed on raw materials.
Why Is This Reform Important?
Prime Minister Narendra Modi, in his Independence Day speech, called the reform a “double Diwali gift” for the people. He highlighted that the new GST structure will reduce the burden on the middle class, help small businesses, and make essential items cheaper.
For the automobile sector, which thrives on affordability, this change could boost sales significantly, especially for entry-level cars and two-wheelers.
Who Will Benefit the Most?
Mass carmakers like Maruti Suzuki, Hyundai and Tata Motors are expected to gain the most as they sell high volumes of small cars. In the two-wheeler segment, Hero MotoCorp, Honda, TVS and Bajaj will see strong benefits thanks to their popular scooter and motorcycle models.
What Issues Still Remain?
Despite the benefits, challenges continue. One key concern is the bundling of vehicles with accessories, insurance, extended warranty, and service packages.
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Under GST law, these may need to be treated as a “composite supply” with the vehicle being the primary product, but grey areas remain. Ambiguity in classification could lead to disputes and litigation.
About the Author Samreen Pall Samreen Pall, Senior Sub-Editor at News18, is a Computer Science graduate but a writer at heart, Samreen has one motto that she swears by: ‘Everything is dull and useless if it has no drama in it.’ This motto c… Read More Samreen Pall, Senior Sub-Editor at News18, is a Computer Science graduate but a writer at heart, Samreen has one motto that she swears by: ‘Everything is dull and useless if it has no drama in it.’ This motto c… Read More
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First Published: August 22, 2025, 11:04 IST
News auto Car Prices May Drop By Rs 36,000, Here’s How GST Reform Will Change Buying In 2025
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