Cars get cheaper, festive sales likely to hit top gear

By Admin

05 Sep, 2025

The Goods and Services Tax (GST) overhaul is set to bring cheer to automobile buyers this festive season. With rationalised tax rates and the removal of cess across various segments, cars are becoming more affordable, and dealers are gearing up for higher customer footfalls.

Small Cars Become More Attractive

Entry-level and mid-segment cars, particularly those priced up to ₹14 lakh, will see up to a 13% reduction in GST and cess. Sub-4 metre cars with engines below 1,200 cc (petrol, LPG, CNG) and up to 1,500 cc (diesel) will now attract an 18% GST instead of the earlier 28%. The additional cess of 1–3% has also been removed, making this segment especially appealing to price-sensitive buyers.

“The benefit is greater for entry and mid-level segment as there is price sensitivity. The news will definitely bring cheer to buyers, and we expect more footfalls at showrooms,” said Vinkesh Gulati, Vice-President, Automotive Skill Development Council.

Bigger Cars and SUVs See Net Savings

Mid-sized and larger cars, with engines above 1,200 cc and over 4 metres in length, will now invite a GST of 40%, up from 28%. However, the complete removal of cess which earlier ranged between 17% and 22% means buyers will still enjoy a net saving of 5–10%.

Santosh Iyer, Managing Director & CEO of Mercedes-Benz India, welcomed the move, saying it “will induce the much-needed impetus by boosting consumption and bring momentum to the automotive industry which essentially remains the pulse of the Indian economy.”

Boost for Hyundai, Hit for Motorcycles

Hyundai India’s MD & CEO, Unsoo Kim, called the revision a move that will “strengthen consumer confidence,” noting that 60% of Hyundai’s ICE portfolio now falls under the 18% slab.

On the other hand, biking enthusiasts are disappointed. High-end motorcycles with engines above 350 cc will now attract 40% GST, up from the earlier 31% (28% GST + 3% cess).

Servicing and Commercial Vehicles Gain Relief

Car servicing costs could also come down as GST on spare parts has been reduced to 18% from 28%. The benefits, however, will depend on the mix of parts used, as items like rubber and fibre continue to attract different rates.

Commercial vehicles such as buses and trucks will now attract 18% GST instead of 28%. “This will not only reduce logistics costs for the economy but encourage customers to upgrade their fleets with modern, fuel-efficient and safer trucks and buses,” said Vinod Aggarwal, MD & CEO of VE Commercial Vehicles.

Tractors and Farm Equipment Become Cheaper

Farmers are set to benefit as GST on tractors and related parts diesel engines, hydraulic pumps, tyres, brakes, and steering wheels has been reduced from 18% to 5%. Narinder Mittal, President & MD of CNH India, highlighted that this would accelerate mechanisation and help reduce crop residue burning by making baling solutions more affordable.

Dealer Concerns on Timing

Despite the positive outlook, dealerships face challenges. The new GST rates will come into effect only on September 22, three weeks from now. Dealers fear that some buyers may postpone purchases until then, with a risk of losing interest altogether.

Additionally, dealers are worried about a potential ₹2,500 crore hit due to cess-related credit payments already made on existing inventory. Since cess deposits were made at the time of purchase from automakers, the sudden removal leaves dealerships unable to claim credit for stock already bought.

Electric Vehicles Unchanged

The flat 5% GST on electric vehicles remains unchanged, keeping them affordable and aligned with the government’s green mobility push.

Festive Season Outlook

Overall, the GST overhaul is set to bring much-needed relief to car buyers and a boost to the automotive sector. While small cars and mid-segment vehicles stand to gain the most, even premium car buyers will enjoy net savings. With the festive season around the corner, the industry expects demand to hit top gear, though dealerships hope the transitional challenges do not dampen the momentum.