New GST slabs are in the cards. Recently, the government has proposed a major overhaul of the GST structure, planning to reduce the existing four slabs (5%, 12%, 18%, and 28%) to two main slabs (5% and 18%), with a new top slab of 40% for luxury and ‘sin’ (harmful) goods. This article aims to provide a detailed analysis of the impact of this change on the automobile sector, the specific cars and models that are likely to become cheaper, and all related aspects.
Current GST Structure and the Automobile Sector
Currently, GST rates on vehicles are applied based on their category, engine capacity, and fuel type. The following table illustrates the current tax regime:
Vehicle Type | GST Rate | Cess | Total Tax |
---|---|---|---|
Small Cars (under 4m, up to 1200cc Petrol, up to 1500cc Diesel) | 28% | 1-3% | 29-31% |
Mid-Size Cars & SUVs (over 4m, engine up to 1500cc) | 28% | 15-20% | 43-48% |
Luxury Cars (over 4m, engine over 1500cc) | 28% | 20-22% | 48-50% |
Two-Wheelers (up to 350cc) | 28% | 0-3% | 28-31% |
Electric Vehicles (EVs) | 5% | 0% | 5% |
Due to these rates, small cars and two-wheelers have become cheaper compared to pre-GST times, but mid-size and luxury vehicles continue to bear a high tax burden because of the additional cess.

Proposed GST Reform: What Changes Are Expected?
In his Independence Day speech on August 15, Prime Minister Narendra Modi announced GST 2.0, presented as a “Diwali gift.” Under this reform:
- Reduced Slabs: The existing 12% and 28% slabs are proposed to be removed, leaving two main slabs of 5% and 18%. A new top slab of 40% is proposed for luxury and ‘sin’ goods (like tobacco, alcohol, and high-end cars).
- Impact on Automobiles: Small cars (under 4m, up to 1200cc petrol, up to 1500cc diesel) and bikes up to 350cc could see their GST reduced from 28% to 18%. Mid-size cars and SUVs might be moved to the new 40% slab, which may include a higher cess.
- Electric Vehicles: The 5% GST on EVs is expected to remain, but reduced taxes on raw materials in the supply chain could further lower their cost.
These reforms are expected to be finalized in the GST Council meeting in September or October 2025.
Comparison: Current vs. Proposed Tax Structure
Vehicle Category | Current Total Tax | Proposed Total Tax | Expected Price Impact |
---|---|---|---|
Small Cars (e.g., Swift, i10) | 29-31% | ~19-20% | Significant Reduction (8-10%) |
Mid-Size Cars/SUVs (e.g., Creta, Nexon) | 43-48% | ~40-42% (estimated) | Moderate Reduction (3-5%) |
Luxury Cars (e.g., Fortuner, BMW) | 48-50% | ~40% + higher Cess | Likely Increase |
Two-Wheelers (up to 350cc) | 28-31% | ~19-20% | Significant Reduction |
Electric Vehicles (EVs) | 5% | 5% | Marginal reduction due to cheaper inputs |
Will Cars Actually Become Cheaper?
Yes, the proposed GST reforms make it highly probable that small cars and two-wheelers will become cheaper. According to a recent HSBC report, prices of small cars could drop by up to 8%, while mid-size and larger vehicles could see a 3-5% reduction. This drop will be primarily due to the shift from the 28% slab to the 18% slab.
For example, if a small car has an ex-showroom price of ₹5 lakh:
- Current Tax: 28% GST + 1% Cess = 29% (₹1,45,000)
- Proposed Tax: 18% GST + 1% Cess = 19% (₹95,000)
- Savings: ₹50,000
Thus, consumers could save between ₹20,000 to ₹50,000 per vehicle, which could boost demand.

Which Specific Cars and Models Will Become Cheaper?
The following vehicle categories and models are expected to become cheaper if the new GST slabs are implemented:
1. Small Cars (under 4m, up to 1200cc Petrol, up to 1500cc Diesel)
These cars will see GST drop from 28% to 18%, with minimal cess. Affected models:
- Maruti Suzuki: Alto K10 (₹4.23-6.21 Lakh), Swift (₹6.49-9.59 Lakh), WagonR (₹5.54-7.33 Lakh), Celerio (₹5.36-7.09 Lakh), Dzire (₹6.79-9.39 Lakh).
- Hyundai: Grand i10 Nios (₹5.92-8.56 Lakh), i20 (₹7.04-11.21 Lakh), Aura (₹6.48-9.05 Lakh).
- Tata Motors: Tiago (₹5.65-8.90 Lakh), Punch (some variants, ₹6.13-10.20 Lakh).
- Kia: Sonet (some variants, ₹7.99-15.69 Lakh).
- Honda: Amaze (₹7.20-9.96 Lakh).
Estimated Savings: Prices could drop by ₹20,000-₹50,000. For example, the Maruti Swift’s price could drop from ₹6.49 Lakh to around ₹6 Lakh.
2. Two-Wheelers (up to 350cc)
Bikes up to 350cc will see GST drop from 28% to 18%, with minimal cess. Affected models:
- Hero MotoCorp: Splendor Plus (₹75,441-78,286), HF Deluxe (₹63,728-68,768), Glamour (₹82,586-87,186).
- Honda: Shine 125 (₹81,944-87,944), SP 125 (₹87,468-92,468).
- Bajaj: Pulsar 125 (₹81,843-94,957), Pulsar 150 (₹1.15-1.42 Lakh), Platina (₹68,256-78,861).
- TVS: Raider 125 (₹95,219-1.03 Lakh), Apache RTR 160 (₹1.21-1.30 Lakh).
- Royal Enfield: Hunter 350 (₹1.50-1.75 Lakh), Classic 350 (some variants, ₹1.93-2.25 Lakh).
Estimated Savings: Prices could drop by ₹5,000-₹15,000.
3. Electric Vehicles (EVs)
The 5% GST on EVs will remain, but taxes on raw materials in the supply chain may reduce, indirectly lowering costs. Affected models:
- Tata Motors: Nexon EV (₹14.49-19.29 Lakh), Punch EV (₹10.99-15.49 Lakh).
- Hyundai: Kona Electric (₹23.84-25.02 Lakh).
- MG Motors: ZS EV (₹18.98-25.08 Lakh).
- Mahindra: XUV400 EV (₹15.49-19.39 Lakh).
Benefit: The cost of these vehicles could see an indirect reduction of 2-3%.
4. Mid-Size Cars and SUVs
These may be moved to a new 40% slab (including GST + Cess), but the total tax could see a net reduction of 3-5%. Affected models:
- Maruti Suzuki: Brezza (₹8.34-14.14 Lakh), Grand Vitara (₹10.80-20.09 Lakh).
- Hyundai: Creta (₹11.00-20.15 Lakh), Venue (₹7.94-13.48 Lakh).
- Tata Motors: Nexon (₹8.00-15.80 Lakh), Harrier (₹15.49-26.44 Lakh).
- Kia: Seltos (₹10.90-20.35 Lakh).
- Mahindra: XUV700 (₹13.99-26.99 Lakh).
Estimated Savings: A price reduction of ₹30,000-₹50,000 is possible, but the benefit may be limited if the cess is increased significantly.
Challenges and Uncertainties
- Higher Tax on Luxury Vehicles:
- The proposed 40% slab could make luxury cars (e.g., Land Rover, Toyota Fortuner, BMW models) and bikes over 350cc (e.g., Royal Enfield Interceptor 650) more expensive.
- This could dampen demand in the premium segment.
- Uncertainty on Cess:
- The benefit for mid-size cars and SUVs could be limited if the cess component is increased. For example, the cess on a Hyundai Creta could increase from 15% to 20%, keeping prices stable.
The proposed GST reforms could be a significant step for India’s automobile sector. Small cars (Maruti Swift, Hyundai i20, Tata Tiago) and two-wheelers (Hero Splendor, Honda Shine) could become cheaper by up to 8%. Mid-size cars and SUVs (Hyundai Creta, Tata Nexon) may see a moderate 3-5% reduction, while luxury vehicles could become more expensive.
The GST Council meeting in September 2025 is expected to finalize these reforms. Consumers are advised to keep an eye on official announcements and plan their purchases accordingly. This “Diwali gift” could open new possibilities for the auto sector.
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