GST Council Approves Major Rate Cuts, Small Cars and Entry-Level Bikes to Get Cheaper

New Delhi, September 4: Yesterday, in a landmark move, the GST Council announced new GST reforms where it removed the four-slab system to limit GST slabs to only two. The GST council announced that effective from September 22, only two GST slabs of 5% and 18% will be applicable for common goods and services. However, 40% GST will be applicable for sin and luxury goods.

The introduction of the new slab will positively affect the prices of small cars and entry-level bikes, significantly boosting the operations of auto manufacturing companies in India.

GST Slabs Of 5% And 18%

Prior to yesterday, four GST slabs – 5%, 12%, 18% and 28%, were applicable on goods and services in India. However, with the GST Council’s announcement, the four-slab system has been removed and only two GST slabs of – 5% and 18% (except 40% for sin and luxury goods) will be applicable from September 22.

Effect On Small Cars, Motorcycles, Larger Vehicles, Hybrid Cars, EVs And Auto Parts

Small Petrol And Diesel Cars:

With the new slab system, small petrol LPG, and CNG vehicles with engines up to 1,200 cc, but length not exceeding 4,000 mm, along with diesel cars with engines up to 1,500 cc and length within 4,000 mm, will now attract 18% GST, down from the previous 28%.

Motorcycles:

Two-wheelers with engine power of up to 350 cc will now attract 18% GST, down from the previous 28%.

Larger Vehicles:

Four-wheelers having engine power above 1,200 cc and length longer than 4,000 mm, motorcycles with engine power above 350 cc, and racing cars will attract 40% GST as they are now categorised in the luxury goods segment.

Electric Vehicles (EVs):

GST on EVs remain unchanged, and they will continue to attract 5% GST.

Auto Components:

GST on all automotive components has been reduced to 18% from 28%. This was a long-standing demand in the auto industry.

Industry Leaders Hailing The Decision

Leaders across industries are hailing the new GST reforms announced by the council, especially in the auto industry as the new slab is being considered as a game changer. Analysts believe that the lower GST burden will help boost consumption, reduce grey market transactions, ease compliance, and improve the competitiveness of India’s auto and components industries.

More Affordable Vehicles

Currently, automobiles attract 28% GST, along with a compensation cess of 1 to 22%, driving the total liable tax to as high as 50% on SUVs. With the revised structure, smaller vehicles and two-wheelers will become more affordable, while premium vehicles will continue to face a higher GST slab.

The overhaul marks one of the most significant steps in simplifying India’s GST framework and is expected to provide a strong boost to demand across the automotive ecosystem.

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