GST cuts on mass-market vehicles and parts promise demand surge; premium bikes, big cars see levy hike.
04 Sep 2025 | 2327 Views | By Darshan Nakhwa
The automobile industry shifted into top gear on Thursday after the GST Council approved sweeping changes in tax rates across vehicles and components, sparking a sharp rally in auto stocks.
Investors piled into frontline auto counters following the announcement. Mahindra & Mahindra rose 7.76% to Rs3,539.25, Eicher Motors surged ...
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The automobile industry shifted into top gear on Thursday after the GST Council approved sweeping changes in tax rates across vehicles and components, sparking a sharp rally in auto stocks.
Investors piled into frontline auto counters following the announcement. Mahindra & Mahindra rose 7.76% to Rs3,539.25, Eicher Motors surged 5.4% to a record Rs6,707.70, while TVS Motor and Hero MotoCorp advanced 4.2% and 3.6%. Maruti Suzuki, Tata Motors and Hyundai Motor also closed higher, gaining between 1.9% and 2.9%, as per data from BSE.
The gains came after the 56th meeting of the GST Council, chaired by Finance Minister Nirmala Sitharaman, unveiled the most comprehensive tax overhaul for the sector since GST’s rollout in 2017. Sitharaman said the reforms aimed at simplifying rates while balancing affordability and equity.
Mass-Market Vehicles Get Relief
At the heart of the changes is a sweeping cut in levies on small cars, compact SUVs, motorcycles up to 350cc, three-wheelers, ambulances, buses and goods carriers. All will now attract 18% GST, down from 28%. Petrol and diesel hybrids that fall within compact car specifications will also benefit from the lower rate.
The most dramatic impact will be felt in the two-wheeler market. With over 92% of domestic production falling below 350cc, mass-market motorcycles are poised to see their GST burden fall from 28% to 18% starting September 22, 2025.
Analysts expect this to unleash pent-up demand. “Two-wheeler OEMs and related ancillaries will be the key beneficiaries of these reforms, with the strong replacement base likely triggering a sharp demand recovery,” brokerage Equirus Securities noted.
The Council also gave a long-awaited boost to the auto components sector by introducing a uniform GST rate of 18% on all parts, removing the patchwork of higher slabs that had plagued suppliers.
Premium Segment Hit
While the mass market cheered, premium buyers and manufacturers braced for a setback. Motorcycles above 350cc–a segment dominated by Royal Enfield, Triumph, KTM and Harley-Davidson and others–will now face a steep 40% GST rate, up from 28%.
Though these bikes make up less than 1% of the market, they have seen strong growth in recent years, riding on the aspirations of urban professionals. The tax hike is expected to raise showroom prices and weigh on affordability. Analysts say the move will particularly impact Royal Enfield, which earns about 10% of its domestic volumes from its 650cc and 450cc products.
The luxury and large ICE SUVs, which earlier faced 28% GST plus a 17-22% cess, will now be taxed at a flat 40%. Hybrids beyond the compact category are included in the higher bracket. Electric vehicles remain untouched at 5%, signalling continued policy support for clean mobility.
Rural Push with Tractors
The Council’s decisions also carry significant implications for rural India. Tractors and farm machinery including equipment for soil preparation, cultivation, harvesting, threshing, baling and composting will now attract just 5% GST, down from 12%. Tractor tyres and parts will also see their rates cut from 18% to 5%.
High-powered road tractors used for semi-trailers, with engine capacity above 1800cc, will be taxed at 18%, a reduction from the previous 28%. The move is expected to lower input costs for farmers and accelerate rural mechanisation.