India’s automobile sector is set for a notable uptick in demand as the new GST 2.0 tax framework kicks in from September 22, 2025. The government’s rationalization of GST slabs simplifies the tax structure with two key rates, 18% for smaller cars (petrol/LPG/CNG engines under 1,200 cc and sub-4-metre length; diesel up to 1,500 cc). This overhaul replaces the previous 28% GST plus varying cess, ushering in more transparency and affordability for buyers across the spectrum.
Affordable Vehicles Boost Market Appeal
The new GST regime has triggered significant price reductions throughout the India automotive market. Buyers from first-time car owners to luxury SUV enthusiasts stand to gain, with savings ranging from Rs 65,000 to Rs 3.5 lakh depending on the model and manufacturer. Prominent carmakers, including Tata Motors, Hyundai, Mahindra, Toyota, Skoda, Renault, and Kia, have already adjusted their prices to pass on these benefits directly to consumers. Industry experts expect the price corrections to stimulate overall vehicle sales, increasing ownership accessibility and encouraging new purchases across urban and semi-urban markets. However, luxury car imports are facing 40% GST, which is likely to impact the luxury vehicles market in India.
Broad-Based Impact on Automotive Ecosystem
GST 2.0’s benefits extend beyond passenger vehicles, applying also to motorcycles (up to 350cc), buses, tractors, and auto parts, driving down costs universally. The simplification and lowering of taxes on auto components is expected to aid manufacturers and the extensive ancillary industry, while creating a favorable investment climate. The policy is also poised to prompt the replacement of older vehicles with newer, fuel-efficient alternatives, aligning with India’s clean mobility and Make in India initiatives.
Optimism Ahead of Festive Season Sales With the festival season, spanning Navaratri, Diwali, and Christmas, around the corner, the automotive industry anticipates a strong surge in demand. GST 2.0’s clarity and cost benefits are seen as transformative, enabling easier tax compliance and reinforcing consumer confidence. Automakers and dealers are gearing up to leverage this positive momentum, which is expected to energize both mass-market vehicles and upscale segments, including the growing electric vehicle (EV) category in the Indian market.
