Entry-Level Cars To Become 8.5% Cheaper After GST Revision: Crisil Report

Indian car buyers are set to benefit from significant price reductions following the Goods and Services (GST) Council's new tax restructuring, with entry-level cars set to become 8.5 per cent more affordable. A new analysis by Crisil Intelligence on Thursday said that the automotive sector will experience substantial price corrections across different vehicle categories after the government's policy overhaul.

New GST Structure

The government has streamlined the GST framework into two primary rates of 18 per cent and 5 per cent, alongside a demerit category taxed at 40 per cent. This simplified structure eliminates the previous "complex" multi-tier system.

The tax relief extends to diesel-powered vehicles, with cars featuring engines up to 1,500cc also benefiting from the reduced 18 per cent rate instead of the earlier 28 per cent levy. Electric vehicles (EVs) continue to enjoy the preferential 5 per cent GST rate, maintaining their competitive advantage in the market.

Under the revised regulations, compact passenger cars running on petrol, liquefied petroleum gas (LPG), or compressed natural gas (CNG) with engines up to 1,200cc and measuring under 4 metre in length will now face an 18 per cent tax rate, down from the previous 28 per cent.

Which Car Segments Benefit Most

Crisil's research suggests that internal combustion engine and hybrid vehicles across various categories will experience notable price improvements. 

Entry-level hatchbacks such as the Wagon R, premium hatchbacks including the Swift, compact sedans like the Swift Dzire, and sub-compact sport utility vehicles below 1,200cc petrol or 1,500cc diesel engines such as the Punch will see the maximum 8.5 per cent price reduction.

Mid-segment vehicles including large sedans (Virtus), compact SUVs (Brezza), mid-SUVs (Creta), and multi-purpose vehicles (Ertiga) with engines below 1,500cc will benefit from a 3.5 per cent price decrease.

However, vehicles exceeding the specified engine capacity limits will face a uniform 40 per cent GST rate under the new structure, eliminating additional cess components. Despite this higher rate, premium SUVs like the XUV 700 and MPVs with engines above 1,500cc such as the Innova are projected to experience a 6.7 per cent price reduction.

EVs Maintain Favourable 5% GST

The reformed tax structure preserves the competitive positioning of electric vehicles by maintaining the existing 5 per cent GST rate, supporting the government's electrification objectives and environmental goals.

Auto Industry Growth Projections For FY26

Crisil's market outlook suggests modest growth expectations across different vehicle segments in the upcoming financial year. Passenger vehicles may experience marginal growth in the lower single-digit range for FY26, while two-wheeler sales could achieve higher single-digit expansion.

The agricultural vehicle segment shows stronger momentum, with tractors projected to maintain steady growth between 4-7 per cent. Commercial vehicle sales are anticipated to remain relatively stable with flat to marginally positive growth patterns.

The analysis notes an important caveat: "The report said that it hasn't factored in any pass-through that may happen from automotive component manufacturers to original equipment manufacturers (OEMs) in the form of GST reduction, as all automotive components have been brought under the ambit of 18 per cent."