Cars Could Get More Affordable By Diwali 2025 As Union Government Plans To Introduce Cheaper GST Rates

Back in 2017, the Indian Government launched the Goods And Services Tax (GST) to make indirect taxation streamlined across the country. Now, after eight years, the Union Government is preparing for a major overhaul in the GST regime, which was announced by Prime Minister Narendra Modi in his Independence Day speech on August 15. This revised GST structure is aimed at simplifying the tax composition and making goods more affordable. 

Amongst the biggest beneficiaries could be car buyers in India, as the government is considering lowering GST rates on small cars and simplifying the overall tax structure. Here is everything you need to know about the proposed GST reforms and their impact on vehicles.

Simpler GST Structure Proposed

The government wants to move away from the current four-tier GST slabs (5, 12, 18 and 28 percent) to a two-slab structure. Essentials would attract 5 percent GST, while most other goods and services, including cars, would fall under 18 percent.

Luxury goods and items such as high-end cars, tobacco, and alcohol would be taxed at a separate 40 percent rate. The idea is to simplify compliance and reduce disputes.

Small Cars Could Get Cheaper By Up To 8 Percent

At present, cars under 4 metres in length with engine capacity ranging up to 1.2-litre for petrol and up to 1.5-litre for diesel attract 28 percent GST along with a cess. Under the new proposal, the GST rate could fall to 18 percent, which may translate into savings of 5 to 8 percent for car buyers. For example, a popular car like the Maruti Swift that is currently priced at around Rs 8 lakh (on-road in many cities) could see its price fall by nearly Rs 40,000 to Rs 60,000 after GST 2.0 is implemented.

Bigger Cars May Be Moved To A Special 40 Percent Bracket

At present, cars longer than 4 metres with larger engines attract the highest GST slab of 28 percent along with a hefty cess, which takes the total tax incidence close to 50 percent. These are typically compact, mid-size and large vehicles such as:

• Compact cars: Sedans like the Honda City or SUVs like the Hyundai Creta and Kia Seltos, which are over 4 metres long.

• Mid-size cars: Bigger vehicles like the Toyota Innova Hycross, Mahindra XUV700, Tata Safari.

• Large cars: Even bigger vehicles like Toyota Fortuner, Skoda Kodiaq and MG M9. 

Under GST 2.0, all of these could be moved into a new 40 percent special bracket, which would replace the current GST plus cess combination. This may not slash prices drastically, especially for compact and mid-size SUVs.

Insurance Premiums May Also Fall

Apart from cars, a source also stated that the government is considering lowering the GST on insurance premiums, including health and life insurance, from the current 18 percent to 5 percent or even zero.

Since motor insurance is mandatory for all cars, this move could lower the total cost of ownership. For instance, a typical annual insurance premium of Rs 20,000 would come down by nearly Rs 2,600 if the GST is cut to 5 percent.

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When Will It Happen?

The proposals are currently with the GST Council, which is expected to take a final call before Diwali 2025. Once approved, the revised tax rates could be implemented soon after.

What It Means For You

If you are planning to buy a car, the timing could not be more interesting. Small cars may get significantly cheaper, while bigger cars could also see some relief. Lower insurance premiums will add to the savings.

So, if GST 2.0 is cleared by the Council as expected, this Diwali could be the best time to drive home a new car. The segment might also see a lot of car sales which is expected to boost the country’s economy even further.

How excited are you for GST 2.0? Let us know in the comments below.

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