middle-class car buyers

GST on small cars may fall from 28% to 18% Prices could drop by 6%–8%, HSBC report suggests Mid-size and luxury car taxes may also be revised Middle-class families dreaming of buying a car may soon get a reason to celebrate. The government is considering a revision in GST rates on vehicles, which could make cars significantly more affordable. Currently, passenger vehicles attract between 29% and 50% tax, including cess, depending on the type and size of the vehicle. For instance, small petrol cars under 1200cc and below four meters carry 28% GST plus 1% cess, while small diesel cars carry 28% GST plus 3% cess. Mid-size cars are taxed at 43%, luxury models at 48%, and SUVs at nearly 50%. Electric vehicles, however, enjoy a lower 5% GST rate. An HSBC report recently suggested that reducing GST on small cars from 28% to 18% could lower prices by around 8%. For larger vehicles, the impact would be smaller, with expected price drops of about 3% to 5%. This reduction could ease the financial burden on middle-class buyers and encourage higher sales across the auto sector. The proposed plan also recommends scrapping the current cess system. Instead, a simplified structure could see small cars taxed at 18%, while large vehicles and SUVs might carry a special 40% rate. Such a model would bring balance to the market and align taxation more closely with vehicle type and size. While this could potentially cost the government $5–6 billion in revenue, analysts argue that higher car sales and subsequent economic growth may offset a large portion of that loss. Historically, GST implementation reduced tax pressure on small and luxury cars but made mid-size vehicles more expensive. Electric vehicles, meanwhile, became far cheaper, encouraging adoption. If the latest proposals are accepted, India’s auto market could see another major shift in consumer preferences.

Car Prices Likely to Drop Soon as GST Cuts Discussed