GST rate cut to lower small car prices by up to `1 lakh, boost festive demand

New Delhi: Prices of small cars could drop by up to Rs 1 lakh following the GST Council’s decision to rationalise tax rates for automobiles, a move expected to revive demand in smaller cities and towns during the festive season, industry experts said on Thursday.

The entry-level PV segment, which accounted for 31 per cent of total PV sales in FY25 and slipped to 27 per cent between April–July 2025, is likely to benefit the most. “The rate cut could significantly lower acquisition costs by up to Rs 1 lakh, which is expected to revive demand, especially in Tier 2 and Tier 3 cities,” said Grant Thornton Bharat Partner Saket Mehra.

Under the new structure, effective September 22, small petrol and diesel cars will attract 18 per cent GST, down from 28 per cent plus cess earlier. Larger cars, SUVs, and premium models will now draw a 40 per cent levy without additional cess, while EVs remain at 5 per cent.

Society of Indian Automobile Manufacturers President Shailesh Chandra said, “The industry welcomes the government’s decision to reduce GST on vehicles to 18 per cent and 40 per cent. This timely move will make vehicles more affordable, particularly in the entry-level segment, significantly benefiting first-time buyers and middle-income families.”

Industry players said the simplified structure would boost affordability, spur consumption, and inject fresh momentum into India’s auto sector.