Entry-level Cars, Bikes Become Affordable; Big SUVs Also Cheaper as 40% Cap Replaces Higher Levies

Moneylife Digital Team 04 September 2025

Economy & Nation

Car and motorcycle buyers are set to benefit from lower prices this festive season after the goods and services tax (GST) council approved a sweeping rate overhaul, bringing small cars and entry-level two-two-wheelers (2Ws) under the 18% tax bracket. The move, part of the Union government’s next-generation GST reforms, comes into effect on 22 September 2025, the first day of Navaratri, and is expected to inject fresh momentum into India’s auto industry.

Under the new structure, all petrol, liquified petroleum gas (LPG) and compressed natural gas (CNG) cars below 1,200cc and under four metres in length, as well as diesel cars up to 1,500cc and four metres in length, will attract 18% GST, compared with total levies of 29%–31% earlier.

Two-wheelers with engine capacity below 350cc will also move to the 18% slab, down from 28%.

Larger vehicles, including sports utility vehicles (SUVs), will now be taxed at a special 40% slab, replacing the previous 43%–50% range.

Commute becomes cheaper with #NextGenGST. pic.twitter.com/3TIKRrgTVt
— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025

Industry analysts estimate that the tax cuts will reduce ex-showroom prices of small cars by around 12%–12.5%. For instance, a hatchback priced at Rs5 lakh today could become cheaper by nearly Rs62,500. Prices of motorcycles in the entry segment are also expected to drop significantly, making them more accessible for first-time buyers.

According to CRISIL Ratings, in the case of internal combustion engine (ICE) and hybrid vehicles, prices of entry-level hatchbacks (e.g., Wagon R), premium hatchbacks (e.g., Swift), compact sedans (e.g., Swift Dzire) and sub-compact SUVs with less than 1,200cc petrol or less than 1,500cc diesel engines (e.g., Punch) will decline about 8.5%. Prices of large sedans (e.g., Virtus), compact SUVs (e.g., Brezza), mid-SUVs (e.g., Creta) and multi-purpose vehicles (MPVs) with less than 1,500cc engines (e.g., Ertiga) will reduce about 3.5%. Further, prices of premium SUVs (e.g., XUV 7OO) and MPVs with above 1,500cc engines (e.g., Innova) will fall about 6.7%.

"In the case of ICE two-wheelers, prices of almost all categories, except one, will reduce about 7.8%. Prices of premium two-wheelers with more than 350cc engine will increase about 6.9%," it added.

The reforms go beyond vehicles. Auto parts will now attract a uniform 18% GST, instead of the current 28% on many components. This is expected to ease supply chain costs and bring further price stability across the automobile ecosystem.

Reduction of #GST rate from 28% to 18% on buses, trucks, and ambulances. Uniform GST rate of 18 % on all auto parts irrespective of their HS code; Three-Wheelers from 28% to 18%

- Union Finance Minister @nsitharaman #NextGenGST #56thGSTCouncil pic.twitter.com/n1f7ByxCD4
— PIB India (@PIB_India) September 3, 2025

Industry leaders welcomed the decision. Shailesh Chandra, president of the Society of Indian Automobile Manufacturers (SIAM), says the cuts come at a crucial time: “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, will significantly benefit first-time buyers and middle-income families.”

Experts noted that the reforms are likely to benefit mass-market brands such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra, especially as demand for compact crossovers like the Fronx and Punch rises. With the festive season approaching, automakers are optimistic about stronger sales volumes.

The government has also retained the 5% GST rate on electric vehicles, sustaining incentives for green mobility.

Meanwhile, industry bodies, including CII and FICCI, hailed the overall GST reforms as a 'bold step' that simplifies compliance, reduces litigation, and provides much-needed clarity for businesses.

For consumers, the GST cuts mean cars, bikes and spare parts will all become more affordable from 22 September 2025, offering timely relief for households and potentially boosting personal mobility in urban and rural India alike.

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