GST Reforms Will Boost Sluggish Sales In Entry-Level Cars, Improve Tax Compliance

(MENAFN- IANS) New Delhi, Sep 6 (IANS) The Goods and Services Tax (GST) reforms in automobiles and automobile parts will provide a direct impetus to demand in entry-level mobility segments where sales have been sluggish, and make compliance easier, a report has said.

“The uniform 18 per cent rate on auto parts simultaneously addresses compliance complexity and reduces lifecycle maintenance costs, benefitting both consumers and vendors,” a report from Grant Thornton Bharat said.

The government has restructured the GST for India's automobile sector effective from September 22, 2025. Entry-level vehicles and parts will now be taxed at a lower rate of 18 per cent from earlier 28 per cent.

The larger cars and luxury models will face a 40 per cent tax rate up from 28 per cent, but the cess on them has been completely removed, dropping the effective tax incidence lower.

By consolidating small cars (petrol up to 1200 cc, diesel up to 1500 cc, length not exceeding 4 metres), small hybrids, two wheelers up to 350 cc, three-wheelers, and goods vehicles into the 18 per cent bracket, the GST Council has reduced the effective incidence from nearly 29–31 per cent (including cess) to a uniform 18 per cent.

The reduced rate is also applicable to ambulances, goods carriers, buses, and factory-fitted hybrids with smaller engine sizes. Auto parts, chassis, accessories, and tires will shift to 18 per cent from the current 28 per cent rate, simplifying compliance and reducing lifecycle costs.

Seats used for motor vehicles, Spark-ignition also got shifted from 28 per cent to 18 per cent slab. Tractors, trailers and fuel-cell hydrogen vehicles with length not exceeding 4 metres got shifted from 12 per cent GST slab to 5 per cent GST slab.

The new structure ensures that price-sensitive buyers experience tangible relief through upfront cost reductions, while fleet operators and logistics providers can gain through admissible ITC and faster refunds, strengthening liquidity and replacement cycles, the report noted.

These reforms pave the way for a more efficient, affordable, and business-friendly GST system, fostering economic growth, enhancing ease of doing business, the report noted.

MENAFN06092025000231011071ID1110024973