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If you have been waiting for a first car, Car GST 2.0 India might be the nudge you needed. The government is weighing a simpler two-slab GST that could lower taxes on entry-level cars. Early talk points to relief for hatchbacks, while big cars keep a higher bracket. None of this is final yet, but the direction looks clear and consumer friendly.
In plain terms, the Centre is considering moving to two principal GST slabs of 5% and 18%, with a special 40% rate for sin and luxury items.
Within autos, small cars may shift from the current 28% GST plus cess to a flat 18%. Larger cars could move to a special 40% rate, with extra levies considered to keep the overall burden similar to today’s 43–50% range. EVs are expected to stay at 5%.
Right now, India’s car GST rate effectively works like this: small petrol cars face about 29% in total (28% GST plus 1% cess), small diesels about 31%, while SUVs can touch 50% with cess.
The proposed modification would cut mass-market taxes quite sharply, especially for hatchbacks and compact sedans.
The proposal goes to a Group of Ministers in late August, with the GST Council likely to take it up soon after. If cleared, announcements are expected around Diwali, which is typically when auto purchases surge. That means any car GST reduction could align neatly with the festive season.
A cut to 18% for small cars would directly lower ex-showroom prices for entry-level models. That is precisely the segment where price sensitivity has kept some buyers on the fence. Two-wheelers could also see relief if they move from 28% to 18%, widening affordability for commuters.
Brokerages say a 10-percentage-point car GST reduction could lift demand by roughly 15–20%. Markets have already priced in optimism, with auto stocks rallying on the hopes of broader adoption of the 18% slab for automobiles.
Mass-market OEMs like Maruti Suzuki, Hyundai, and Tata Motors stand to benefit the most from a lower car GST rate India for small cars, where volumes are high. Analysts estimate the sector could see a meaningful uptick in enquiries and conversions if rates drop to 18%.
On the flip side, EVs at 5% GST may lose some price advantage against ICE models if ICE taxes fall, which could temper EV momentum in the short term.
There is also a structural angle. India’s car penetration is presently around 32 per 1,000 people. This means a broad-based car GST reduction could encourage more first-time buyers into the market. This can prove especially true in smaller towns where total cost of ownership drives decisions.
A key aim is to end the long-running disputes tied to engine size, length, and ground clearance.
For now, remember this is all policy-in-progress. The GST Council’s final call will determine precise slabs, any cess tweaks, and implementation date.
If you are eyeing an entry-level car and can wait a few weeks, it makes sense to watch the Council outcome before booking.
If festive delivery is non-negotiable for you or your family, then start speaking with dealers about price-protection clauses, particularly those connected to any car GST reduction 2025.
Either way, you’ll have to stay tuned for official notifications and credible updates before you sign on the dotted line anyways.
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