5th September 2025:India’s auto sector, spanning passenger car market leaders to commercial vehicle giants, two-wheeler stalwarts, and startups, has embraced the Goods and Services Tax (GST) Council’s landmark rationalisation as a reform with the potential to reset affordability, consumption, and growth. The sweeping shift to a two-rate structure—18% for most vehicles and 5% for EVs and green technologies—drew applause across the mobility value chain, even as some analysts flagged limits to its impact.
Welcoming GST Announcements by the Ministry of Finance, Mr. Shailesh Chandra, President, SIAM, said, “Automobile Industry welcomes the Government’s decision to reduce the GST on vehicles to 18% and 40%, from earlier rates of 28% to 31% and 43% to 50%, respectively, especially in this festive season.
This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian Automotive sector. Making vehicles more affordable, particularly in the entry-level segment; these announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility.
We also thank the Government of India for continuing with GST rate of 5% on Electric Vehicles, which will help sustain the ongoing momentum towards sustainable mobility.
Furthermore, the resolution of classification interpretations and the correction of the inverted duty structure will greatly streamline business processes across the automotive industry, supporting ease of doing business.
We are confident that the Government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.”
Passenger Cars: Relief at the Bottom, Stability at the Top
Maruti Suzuki Chairman R.C. Bhargava welcomed the move as “a major boost to the entire economy,” citing the placement of small cars in the 18% slab—down from 28%. A 10% cut, he argued, would reignite demand in a flagging segment: “We expect the industry growth rate to return to about 7% annually.”
Luxury car maker. Audi India’s Balbir Singh Dhillon said the rationalisation “supports industry growth and market expansion”, while Volvo Car India’s Jyoti Malhotra praised it as “timely and commendable” but urged uniformity across ICE vehicles to strengthen innovation and safety.
Tata Motors’ Shailesh Chandra noted that the dual benefit of 18% GST on small cars and 5% on EVs “will accelerate adoption and reinforce confidence in India’s economic environment.”
Brokerage house Equirus Securities struck a note of caution, saying, “We expect two-wheeler OEMs and related ancillaries to be the key beneficiaries of these reforms, with the strong replacement base likely triggering pent-up demand. In contrast, the PV segment should see only a gradual recovery, as consumer sentiment on the ground remains mixed—small cars may witness some revival, while the premium segment is likely to remain largely unaffected. CV demand will continue to be driven by freight rate improvement and higher goods movement, remaining largely indifferent to the rate cut.”
Two-Wheelers: Sharper Thrust to Consumption
TVS Motor Company’s chairman, Sudarshan Venu, said the change fitted squarely into the government’s long-term vision of widening access. “It will significantly boost affordability across segments of society. For our industry especially, it will help two-wheelers become more accessible and also help those looking to upgrade,” he said.
The brokerage view reinforced that takeaway, projecting that two-wheelers, already due for a replacement-led uptick, would see the fastest recovery pace compared to passenger cars or CVs.
Three-Wheelers: The Lifeline of Last-Mile Mobility
The government’s decision to reduce GST on three-wheelers drew particularly strong endorsement, given the segment’s outsized role in India’s transport backbone.
Divya Chandra, managing director of Atul Greentech, underlined the scale and impact: “The government’s move to reduce GST on three-wheelers is a significant step for the mobility ecosystem, given that this segment is the lifeline of India’s last-mile connectivity. With over 6 lakh three-wheelers sold annually, affordability remains the most critical factor for drivers and fleet operators.
While the rate cut directly benefits ICE and CNG three-wheelers, we believe it also has a catalytic role in shaping the transition to EVs. As cost pressures ease for operators, it creates room for a more balanced evaluation between conventional and electric three-wheelers.
Omega Seiki founder Uday Narang termed it a “true Diwali gift.” At the same time, E-Fill Electric CEO Mayank Jain said the reform would cut input costs for EV startups and reduce disputes over classification, “allowing us to pass affordability to end-users.”
Commercial Vehicles: Rationalisation Meets Freight Cycles
In commercial transport, industry leaders noted that fleet demand is more often dictated by goods movement cycles than tax tweaks. Tata Motors’ Girish Wagh still called the rate cut to 18% on trucks and buses “pivotal” for liquidity and welcomed the 5% GST on hydrogen fuel cells as a “catalyst for zero-emission logistics.”
Ashok Leyland managing director Shenu Agarwal said the relief “will spur freight traffic and lower the cost of buses and trucks”, while streamlining compliance for fleet operators. But reflecting Equirus’ note, CV growth is still expected to trace freight rate trends rather than GST alone.
Components and tyres: A Wider Ripple
Tyre makers pointed to parallel relief on inputs. JK Tyre CMD Raghupati Singhania said the cut from 28% to 18% on passenger tyres and from 12% to 5% on farm tyres would reduce costs for both fleet operators and farmers: “This empowers us to serve customers more effectively while also improving efficiency.”
A Reform That Widens the Road Ahead
The industry’s resounding welcome marks the reform as one of the most far-reaching fiscal resets since GST’s incepti
on in 2017. While analysts caution that sentiment and macro-demand drivers will continue to set the industry’s trajectory, the rationalised regime simplifies compliance and broadens affordability.
As Tata Motors’ Chandra summed up, the measures not only ease buying decisions for consumers but also “propel India toward a cleaner, smarter, and self-reliant mobility future.”
“These reforms reflect Prime Minister Narendra Modi’s vision for next-generation GST that prioritizes both ease of living and ease of doing business. The streamlined GST framework goes beyond rate rationalization with structural reforms enhancing long-term confidence in India’s economic environment.
The GST Council’s decision to retain the 5% GST rate on electric vehicles is a forward-looking move that reinforces India’s commitment to sustainable, zero-emission mobility and signals long term policy stability. The reduction of GST on small cars to 18% further expands access to personal mobility, making it more affordable for a broader section of society. Together, these measures will not only accelerate EV adoption but also drive innovation, strengthen domestic manufacturing, and propel India toward a cleaner, smarter, and self-reliant mobility future.”
SWAPNESH R MARU, Deputy Managing Director, Toyota Kirloskar Motor
“We thank and congratulate the Government for the landmark second generation GST reform, a significant step towards accelerating India’s journey to a stronger and more resilient economy. Beyond empowering the common man, this reform is poised to enhance market confidence, strengthen consumer sentiment and stimulate investments — collectively broadening prosperity across the nation. The relief extended to smaller vehicles, along with the rationalization of levies on larger ones, will enhance mobility for the common man by making it more accessible and affordable, while at the same time stimulating growth across the automotive sector.
As a next step , it is essential to reduce fossil fuel imports and achieve our stated national objectives of energy self-reliance, promotion of bio-fuels and decarbonisation. Given India’s rapid economic growth that is bound to increase the demand for energy, particularly fossil fuel consumption by transportation sector, it is crucial that all cleaner and greener technologies are also promoted and incentivised through suitable policy measures, including taxation so that these are preferred by consumers over the conventional petrol and diesel vehicles.”
Such reforms have the potential to strengthen market sentiment, encourage demand across segments, and create a more conducive environment for long-term growth. This approach signals the government’s intent to make the tax ecosystem more equitable and future-ready, which will benefit the entire value chain and further boost India’s position as a key automotive hub.
