Small Cars, Motorcycles With Up To 350 cc Engine Get More Affordable Under GST 2.0

The Government of India has announced a major GST revision exercise, affecting multiple sectors. The revised rates will be effective from September 22. 

For the automotive sector, the Government has made significant strides wherein all petrol. 

Petrol-hybrid and CNG cars will now attract 18% GST, down from the 28% slab before. However, this rate will be applied to small cars, defined as automobiles with an engine capacity of up to 1,200 cc (1.2-litre) and measuring not longer than 4 metres. This basically includes all subcompact cars. The same rate will also be applied to diesel and diesel hybrid cars with engine capacity up to 1,500 cc (1.5-litre) and measuring up to 4 m long. 

Trucks will also see a downward price revision, as GST on them has been reduced from 28% to 18%.

However, cars with diesel engines above 1,500cc and petrol engines of more than 1200cc will now attract 40% GST, up from 28%. Similarly, big SUVs and sedans that exceed 4,000 mm in length will now be charged with 40% GST as well. This rate will also be applicable to diesel-hybrid and petrol-hybrid cars that measure more than 4 metres long. 

Bigger vehicles with a hybrid powertrain also may now get cheaper even though they are slapped a higher GST rate. That's because the removal of cess will put them in an effectively lesser tax category of 40%.

“By moving to a streamlined two-rate structure and focusing on essentials that touch the lives of every citizen- from food, health, and insurance to agriculture and small businesses -the Government has reaffirmed its commitment to Ease of Living and Ease of Doing Business. The rationalisation measures will not only provide immediate relief to households but also strengthen key sectors such as  automobiles, agriculture, healthcare, renewable energy, and MSMEs - all of which are vital to job creation and sustainable growth. The correction of long-pending inverted duty structures in critical industries is welcome. At Mahindra, we view these reforms as transformative,” says Dr. Anish Shah, MD, Group CEO and MD, Mahindra Group.

The GST rate on motorcycles with engine capacity up to 350 cc will now be 18% instead of 28%. Similarly, all three-wheelers, irrespective of engine capacity, will also attract 18% GST. While bikes with engine capacity above 350 cc will now fall under the 40% slab. 

Similarly, even EVs did not find any mention in the GST council’s announcement today, which means they remain at the same tax slab of 5%. “We also appreciate the continuation of the  5% GST rate on EVs, which is a critical enabler of India’s clean mobility vision. This measure will further accelerate the adoption of electric vehicles and reinforce India’s leadership in sustainable, green transportation,” Rajesh Jejurikar, ED & CEO, Auto and Farm Sector, M&M. 

“By making vehicles more affordable across all segments, this move will not only boost consumer spending but also simplify complex classification disputes that have long burdened the industry. The discontinuance of the cess is a particularly pragmatic step, which will provide much-needed support to a sector that is a vital contributor to our nation's GDP,” says Saurabh Agarwal, Partner & Automotive Tax Leader, EY. 

Tractors, tractor tyres and parts also see revision of applicable GST rates. Tractors will now attract 5%GST, down from 12%, and GST for tractor tyres and parts has gone down from 18% to 5%.

Agarwal also adds that, “While this change is broadly positive, the automotive industry must now carefully reassess the financial impact of state incentives and subsidies, which are often linked to GST rates. This may necessitate a renegotiation with state governments to address potential changes in costs and clawback periods.”