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Informist, Thursday, Sept. 4, 2025

 

By Anand JC

 

NEW DELHI – Prices of cars and two-wheelers--the two mass-market automobile segments in India--could fall up to 8.5% as a result of the rejig in goods and service tax rates announced late Wednesday, analysts said. Indian automobile companies hailed the move as a game-changer, especially for first-time buyers and middle-income families.

 

GST on entry-level two-wheelers and smaller cars have been cut to 18% from 28%. Starting Sept. 22, bigger cars will attract a tax of 40% with no compensation cess, compared with the current regime of 28% tax in addition to the cess of up to 22%. Two-wheelers formed over 80% of wholesale sales in Apr-Jul and passenger vehicles contributed 17% to overall sales.

 

"On an equated monthly instalment level, perhaps the impact does not look that big," said Puneet Gupta, director at S&P Global Mobility. "But you always need a trigger to buy such products, and this GST cut will be a big trigger. It will create a spark among customers," he said.

 

For a car costing INR 850,000 ex-showroom, the price cut could be around 10%, or INR 85,000, Gupta said. If a car costs INR 1 million on-road, the price impact could be around 7.5%, he added. "I expect to see a rush for vehicle purchases. Fence-sitters who wanted to buy their cars in 2026, 2027 will advance their purchases," Gupta said.

 

In a world where customers are increasingly preferring larger cars, a cut in GST rates and the income tax break announced earlier this year can spur demand for small cars, said Hemal Thakkar, director at CRISIL Intelligence.

 

"Prices of small cars increased up to 50% in some instances in the last 4-5 years, but I expect some mojo to be back for small cars now," Thakkar said. Customers who would have preferred used cars for around INR 500,000, will now prefer newer cars that will now cost lower, Thakkar said.

 

Prices of large sedans such as the Volkswagen Virtus, compact sport utility vehicles such as the Maruti Suzuki India Ltd.'s Brezza, mid-sized sport utility vehicles such as Hyundai Motor India Ltd.'s Creta, and multipurpose vehicles will reduce by about 3.5% ex-showroom, CRISIL Intelligence said in a report on Thursday. The engine capacity of these vehicles is below 1,500 cubic centimetres. Currently taxed at 45% including GST and compensation cess, these cars will be taxed at 40% Sept. 22 onwards.

 

Prices of premium sport utility vehicles such as the XUV 700 made by Mahindra & Mahindra Ltd. and Toyota's Innova will fall by around 6.7%, CRISIL Intelligence said. Their engine capacities exceed 1,500cc.

 

Automobile experts expect prices of two-wheelers to come down by roughly 8%, but only for those with engines below 350cc. Motorcycles with engines above 350cc will be taxed at the newly created slab of 40%, clubbing luxury and sin goods. Two-wheelers with an engine of over 350cc currently attract a base tax rate of 28% in addition to 3% compensation cess.

 

CRISIL Intelligence expects prices of premium two-wheelers to increase by 6.9%, making it the only automobile segment which will see a price increase after the GST rejig. "This (GST rate on premium two-wheelers) is a surprise; it is rather unfortunate," Thakkar said.

 

Before the announcement, two-wheeler makers such as Eicher Motors Ltd.'s Royal Enfield had appealed to the GST Council to support promotion of this industry by not fixing a tax of 40% on these variants. However, Royal Enfield is still expected to benefit from the overall tax rejig as premium motorcycles form only 8% of its overall portfolio.

 

Thakkar expects sales of two-wheelers to grow in high single digits while sales of passenger vehicles could grow in low single digits for the ongoing financial year. Earlier this year, the Society of Indian Automobile Manufacturers had forecast a growth rate of 1-2% for 2025-26 (Apr-Mar) as the industry reels from muted demand and affordability issues.

 

Analysts had previously expressed concerns that the new GST regime would make electric vehicles less attractive compared with the fossil fuel-run cars. Electric cars will continue to be taxed at 5%. "This (preference for petrol and diesel-run cars instead of electric cars) is a short-term blip, it will be only temporary," Thakkar said. He attributes this to the fact that the cost of operating electric vehicles won't increase in the long run, as opposed to fossil fuel-run cars.  End

 

Edited by Akul Nishant Akhoury

 

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