The Indian automobile sector has consistently been sending a message to the tax community. From excise duty to VAT, the community’s portfolio is significantly impacted by government decisions. With the dinosaur change in 2025, many tow trucks, scooters, and two-wheelers have become more expensive. This article explains why automobile companies are declining and what benefits both investors and the industry hold.
What is GST and Its Role in the Automobile Sector?
Before GST, the automobile industry faced multiple taxes such as:
- Excise duty
- VAT (Value Added Tax)
- Octroi and entry tax
- Road tax (separately applicable)
This complex system often led to price increases due to tax hikes. After the implementation of GST in 2017, these reporting taxes were unified. However, vehicles remained subject to the highest 28% GST slab, plus a compensation cess, which varied depending on the vehicle type.
The Recent GST Rate Change on Automobiles
In 2025, the GST Council revised tax rates for automobiles to boost demand and support manufacturers. Key highlights include:
- Small cars and hatchbacks: Reduced cess, making entry-level cars more budget-friendly.
- SUVs and larger vehicles: Moderate cess cut, lowering prices for premium buyers.
- Two-wheelers: Major relief in taxes, improving affordability in rural and semi-urban markets.
- Electric vehicles (EVs): Already taxed at only 5% GST, making them highly attractive.
Why Are Automobiles Becoming Cheaper After GST Revision?
- Lower Tax Burden
The reduction in GST cess directly lowers the final price of vehicles. Car manufacturers are passing this benefit to buyers. - Boost in Consumer Demand
With lower prices, more people are willing to purchase vehicles. This demand surge helps automakers maintain profitability. - EV and Hybrid Vehicle Advantage
The government’s push for green mobility with reduced GST on EVs makes electric scooters and cars far more affordable. - Reduced Compliance and Logistics Costs
A simpler tax structure reduces overheads for manufacturers, indirectly lowering vehicle prices.
Impact on the Automobile Industry and Consumers
- For Consumers: Lower prices mean better affordability, higher-value features, and easier financing options.
- For the Industry: Higher sales volumes help manufacturers clear old inventory, increase production, and support auto-component suppliers.
- For the Economy: Growth in automobile sales generates employment, boosts GST collections, and encourages green technology adoption.
Conclusion
The GST rate changes in 2025 have made automobiles cheaper in India, benefiting both buyers and manufacturers. Lower cess on cars, SUVs, and two-wheelers, along with the already low GST on electric vehicles, have made the market more consumer-friendly. For Indian families, this means that buying a car or two-wheeler is now more affordable than before. This is a golden opportunity for the industry to revive growth and accelerate India’s journey towards sustainable mobility
Frequently Asked Questions (FAQs)
Q1. Why have automobile prices in India dropped after the GST rate change?
Automobile prices have fallen because the GST Council reduced the cess on cars, SUVs, and two-wheelers in 2025. This lowered the overall tax burden, making vehicles more affordable.
Q2. What is the current GST rate on cars in India?
Most cars fall under the 28% GST slab plus an additional cess. However, after the recent revision, the cess on small cars and SUVs has been reduced, lowering their final prices.
Q3. What is the GST rate on two-wheelers in India?
Two-wheelers attract 28% GST, but the cess has been cut in 2025, making scooters and motorcycles cheaper for rural and semi-urban buyers.
Q4. What is the GST rate on electric vehicles (EVs)?
Electric vehicles (EVs) enjoy a concessional 5% GST rate, which is significantly lower than petrol and diesel vehicles. This makes EVs more affordable and encourages green mobility.
Q5. How will the GST change impact the automobile industry?
The GST revision is expected to boost demand, clear old inventory, increase production, and create more jobs in the automobile and auto-component industries.