Auto industry GST slabs: First-time buyers, middle-income families to gain; sector seeks clarity on cess

The automobile industry has welcomed the GST Council’s decision to reduce tax rates on vehicles, calling it a timely step that will lift demand, make cars and two-wheelers more affordable, and particularly benefit first-time buyers and middle-income families.

The new two-tier structure, announced on Wednesday, simplified levies to 5% and 18% from September 22, coinciding with the start of Navaratri.


Industry leaders said the changes would inject fresh momentum into the sector and urged the government to quickly clarify rules on compensation cess on unsold vehicles to ensure a smooth transition.

Society of Indian Automobile Manufacturers (SIAM) President Shailesh Chandra said the industry is pleased with the decision to reduce GST on vehicles to 18% and 40%.

“This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector,” he told PTI.

“Making vehicles more affordable, particularly in the entry-level segment; these announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility.”

C S Vigneshwar, President of the Federation of Automobile Dealers’ Associations (FADA), described the changes as “bold and progressive reforms” that simplify the tax structure and create consensus across states.

“This is a decisive step that will boost affordability, spur demand, and make India’s mobility ecosystem stronger and more inclusive,” he said. “As the country heads into the peak festive season, glitch-free and implementation will be the key to ensuring that the benefits seamlessly reach customers.”

TVS Motor Company chairman Sudarshan Venu said the cut was a major move to turbocharge growth.

“It will significantly boost consumption across segments of the society. For our industry especially, it is a welcome move as it will help two-wheelers become more accessible and also help those looking to upgrade,” he was cited by PTI.

Chandra also welcomed the continuation of the 5% GST rate on electric vehicles, saying it “will help sustain the ongoing momentum towards sustainable mobility”. He added that resolving classification issues and correcting the inverted duty structure would streamline business processes and support ease of doing business.

He further expressed confidence that “the government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition”.

Vigneshwar expressed similar concern, pointing out that “one area that may need earliest clarification is about levy and treatment of cess balances currently lying in dealers’ books, so that there is no ambiguity during transition”.

Under the revised slabs, petrol, LPG and CNG vehicles with engines up to 1,200 cc and under 4,000 mm in length, as well as diesel vehicles up to 1,500 cc and 4,000 mm, will be taxed at 18%, down from 28% plus cess.

Motorcycles up to 350 cc will also be taxed at 18% instead of 28%, PTI reported.

Larger vehicles – above 1,200 cc and longer than 4,000 mm – along with motorcycles above 350 cc and racing cars, will face a 40% levy. Small hybrid cars will benefit from lower rates, while electric vehicles will continue at the 5% slab.