India is witnessing a potentially
groundbreaking shift in automotive taxation. In a move to simplify the goods and services tax (GST) structure, the government is considering reducing the tax rate on large sedans and SUVs from the current up to 50% (comprising 28% GST plus cess) to a flat 40% special rate.
If approved, this change—part of a broader GST restructure aimed at streamlining the four-tier rate system into just two main slabs (5% and 18%), plus this new 40% levy for luxury and sin goods—will mark one of the most significant automotive market interventions in years.
The Practical Impact — What This Means for Buyers
Currently, SUVs and sedans often face combined GST plus cess reaching 43–50%. The shift to a 40% flat rate could translate to sizeable savings for buyers. For example, a car priced at ₹30 lakh may see a reduction of approximately ₹3–4 lakh, significantly lowering the sticker price and monthly instalments for prospective buyers.
Wider Reform Agenda: Two-Slab GST System
The 40% rate is part of a sweeping effort to simplify GST — keeping only the 5% and 18% slabs for most items, while applying the 40% rate selectively to high-end and sin goods like premium vehicles and tobacco.
Automakers and sellers anticipate that the revised structure will boost demand in the auto sector, as affordability improves across market segments.
Broader Consequences for the Auto and EV Markets
While the tax cut may ignite demand for larger combustion-engine vehicles, analysts caution it could inadvertently slow the momentum of electric vehicles (EVs). EVs currently enjoy a steep tax advantage at 5% GST. Narrowing this gap by reducing GST on ICE vehicles could erode EVs’ competitive pricing edge.
Despite the fanfare, these proposals still await final approval from the GST Council. Industry observers expect a decision may come by October/Diwali 2025, after which automakers could adjust pricing and ramp up production ahead of the festive season.
[Newsroom staff written original, where key claims or facts are used, I’ve referenced the original sources (like
NDTV Profit,
The Economic Time, Moneycontrol,
The Times of India, Reuters, FT, etc.) transparently.]
