The Indian middle class is set to receive a major relief ahead of Diwali, as the government is planning significant changes in the Goods and Services Tax (GST) structure. According to reports from the Economic Times, the GST Council is considering a proposal to cut rates on small cars, two-wheelers, and hybrid passenger vehicles. If approved, this move could substantially lower the prices of entry-level vehicles, making them more affordable for the middle-income group.
At present, GST in India has multiple slabs including 5%, 12%, 18%, and 28%, with some additional cess on luxury items. To simplify the tax structure, the government is reportedly planning to reduce it to just two major slabs—5% and 18%. Under the new structure, the 12% and 28% categories would be removed. However, certain luxury goods and products such as tobacco may face a special tax of up to 40%. Daily essentials like food items will continue to fall under the 5% category, while most industrial goods and items relevant to the middle class will attract 18% tax.
This restructuring means that nearly 99% of items currently taxed at 12% would shift to 5%, while almost 90% of products in the 28% bracket would move to 18%. The auto sector, especially small cars and two-wheelers, stands to benefit greatly from this change.
Currently, small cars—defined as vehicles under 4 meters in length with petrol, CNG, or LPG engines up to 1200cc—are taxed at 28% GST plus 1% cess, making it a total of nearly 29%. Under the proposed changes, this would drop to 18%. Such a reduction could lower prices of small cars by 12% to 12.5%.
For example, the Maruti Suzuki Swift, which has an ex-showroom price of around ₹6.5 lakh, could become cheaper by up to ₹78,000. The Maruti Brezza, priced at around ₹8.7 lakh, may see a reduction of nearly ₹1 lakh. Similarly, the Maruti Ertiga priced at ₹9.12 lakh could also be cheaper by about ₹1 lakh. Tata’s Nexon, with a current ex-showroom price of approximately ₹8 lakh, could see a price drop of ₹1 lakh, while models like the Tata Punch could also become more affordable. Hyundai cars too would be impacted, with the Creta, currently starting at ₹11.11 lakh, expected to be cheaper by around ₹1.3 lakh, and the Venue by nearly ₹1 lakh.
When it comes to larger cars and SUVs, which currently face a total tax burden of 43% to 50%, there may not be any significant relief. On the other hand, electric vehicles, which already enjoy a concessional 5% GST, will continue under the same structure without any change.
Two-wheelers will also benefit from this tax restructuring. At present, they attract 28% GST, but this could be brought down to 18%. This will make entry-level motorcycles and scooters much more affordable, boosting demand in the segment. Analysts suggest that this will be a big boost for middle-class families looking to buy budget-friendly two-wheelers.
To evaluate this proposal, the government has formed a Group of Ministers (GoM), which will review the changes in its upcoming meeting. The final decision is expected in the GST Council’s session in the third week of September. If the proposal is approved, the new GST rates could be implemented before Diwali, providing timely festive relief to millions of Indian families planning to purchase a car or bike.
For consumers, this means waiting a few more weeks could prove highly beneficial. Those planning to buy a car or two-wheeler might get their dream vehicle at a much lower cost just in time for the festive season.
Disclaimer:
The information provided in this article is based on reports and proposals under discussion. Final decisions regarding GST rate changes will be taken by the GST Council, and actual vehicle prices may vary depending on official notifications, dealer policies, and state-level charges. Readers are advised to verify details from official government announcements before making any financial or purchase decisions.
