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The government has rationalised Goods and Services Tax (GST) rates across the automobile sector, covering two-wheelers, cars, tractors, buses, trucks, and auto components.
The government’s GST rationalisation is being seen as a decisive step to strengthen India’s automobile ecosystem.
In a major reform move, the government has rationalised Goods and Services Tax (GST) rates across the automobile sector, covering two-wheelers, cars, tractors, buses, trucks, and auto components. The decision is expected to reduce prices for consumers, stimulate demand, generate employment, and strengthen India’s positioning as a global manufacturing hub.
The reform is part of India’s broader push under Make in India, the Production Linked Incentive (PLI) scheme, and the National Logistics Policy to modernise infrastructure, boost local production, and encourage cleaner mobility solutions.
PM Narendra Modi had announced the GST rationalisation during his speech on August 15 this year. Since then, the Auto Nifty index has jumped nearly 11%.
Bikes, Cars and Large Vehicles to Get Cheaper
GST on two-wheelers with engine capacity up to 350cc has been slashed from 28% to 18%, making bikes more affordable for youth, gig workers, and rural households where two-wheelers remain the primary mode of transport.
Small cars — petrol cars under 1200cc and diesel cars under 1500cc with length not exceeding 4 metres — will now attract 18% GST, down from 28%. This is expected to encourage first-time buyers, expand mobility in smaller cities, and support car dealerships and auto-finance firms.
Larger cars will now be taxed at a flat 40% without any additional cess, replacing the earlier structure of 28% GST plus cess. The move not only simplifies taxation but also allows manufacturers to claim full input tax credit (ITC), which was earlier restricted.
Relief for Tractors, Trucks and Buses
India’s tractor market, among the largest in the world, is set to benefit from a steep reduction in GST. Tractors under 1800cc will now attract 5% tax instead of 12%, while road tractors for semi-trailers with engines above 1800cc will be taxed at 18% instead of 28%. Tractor parts, including tyres and hydraulic pumps, will also fall under the 5% slab. The cut is expected to drive mechanisation in agriculture, boost exports, and support ancillary MSMEs.
Commercial vehicles such as trucks and delivery vans will see GST reduced from 28% to 18%, easing capital costs for fleet operators and MSME truck owners. Lower freight costs could bring down prices of essential goods such as foodgrains, cement, steel, FMCG, and e-commerce deliveries, helping contain inflation.
For buses with seating capacity of more than 10 persons, the GST rate has been brought down from 28% to 18%. This is expected to reduce upfront costs for fleet operators, schools, state transport undertakings, and tour operators. Cheaper buses may also make public transport more affordable and reduce congestion and pollution by encouraging shared mobility.
Auto Components and Ancillary Industries
Most auto components will now be taxed at 18%, down from higher slabs earlier. Lower taxation on tyres, glass, batteries, plastics, and electronics will benefit the entire supply chain. Rising vehicle sales will create a multiplier effect across MSMEs engaged in manufacturing and servicing, generating jobs in dealerships, logistics, transport services, and informal sectors such as mechanics and small garages.
Wider Economic Impact
The auto industry directly and indirectly supports over 3.5 crore jobs in India. Analysts expect that the GST cuts will spur fresh hiring across dealerships, component makers, transporters, and service providers. Easier financing through lower EMIs will also promote retail loan growth and financial inclusion in semi-urban and rural markets.
The move aligns with government initiatives such as PM Gati Shakti and the National Logistics Policy by lowering logistics costs and boosting export competitiveness. Additionally, lower taxes on newer, fuel-efficient vehicles may incentivise consumers to replace older, polluting models, furthering the government’s clean mobility agenda.
The government’s GST rationalisation is being seen as a decisive step to strengthen India’s automobile ecosystem. By cutting costs for consumers, easing compliance for manufacturers, and creating new opportunities for MSMEs, the reforms are expected to provide a strong push to domestic demand, job creation, and India’s global competitiveness in the years ahead.
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h…Read More
Haris is Deputy News Editor (Business) at news18.com. He writes on various issues related to personal finance, markets, economy and companies. Having over a decade of experience in financial journalism, Haris h… Read More
September 11, 2025, 16:27 IST
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