The dealers’ association noted that the industry is currently holding around 55 days of inventory, which is adequate for business needs.
23 Aug 2025 | 10071 Views | By Kiran Murali & Ketan Thakkar
At a time when the auto industry gears up for the festive season, the Federation of Automobile Dealers Associations (FADA) sounded a note of caution for its members, warning them against higher inventory and premature messaging on vehicle prices in light of the government’s proposed GST 2.0 reforms.
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At a time when the auto industry gears up for the festive season, the Federation of Automobile Dealers Associations (FADA) sounded a note of caution for its members, warning them against higher inventory and premature messaging on vehicle prices in light of the government’s proposed GST 2.0 reforms.
The government has proposed restructuring the existing GST regime - reducing the existing multiple GST slabs to a simpler two-rate structure. Reports say that could be a sharp cut in the GST rates for vehicles, particularly for entry-level cars and two-wheelers, from 28% to 18%.
The current GST rates fall in four primary slabs - 5%, 12%, 18%, and 28%. ICE vehicles have a GST rate of 28% with an additional compensation cess, ranging from 1% to 22% depending on the type of vehicle. The tax on small petrol cars is around 29%, while it soars to 50% for large SUVs.
Advisory to Dealers
In its advisory dated August 23, FADA highlighted that the industry is currently holding around 55 days of inventory, which is adequate for business needs. Against the backdrop of GST uncertainty, the association has urged dealers to concentrate on retail sales rather than increasing the inventory from OEMs, which may lock up capital unnecessarily.
The association has recommended reducing exposure to high-cess inventory until the GST Council announces the new structure and seek guidance from OEMs on how cess, input tax credit and stock valuation will be handled during the transition to exercise financial prudence to avoid liquidity stress.
“Members are advised to refrain from speculative communication with customers, especially claims that vehicles will become cheaper or that cess will no longer apply. The exact impact of GST 2.0 on vehicle pricing is still unclear,” the advisory stated.
Festive Season Uncertainty
The timing of the advisory is significant. Traditionally, the festive period — beginning with Onam and Ganesh Chaturthi in August–September, and peaking with Navratri and Diwali in October–November — is when dealers see their highest retail traction of the year. Automakers usually push inventory into the channel ahead of these months to capture surging demand.
Meanwhile, the compensation cess levy on certain “luxury and sin items,” including motor vehicles, is set to stop in March 2026. The cess was initially scheduled to end in June 2022, but was extended till March 2026. The cess was introduced to compensate states for the potential revenue losses in the first five years of the GST regime.
If the cess is indeed removed or restructured, larger vehicles could potentially become cheaper, prompting some customers to delay purchases in anticipation. On the other hand, if cess continues unchanged, premature messaging could backfire, denting consumer trust during the most critical sales season.
“At present, it is unclear whether the compensation cess will be completely abolished. If abolished, the process for offsetting credit balances against cess is also uncertain. Until clarity emerges, members are advised not to promote to customers that vehicles will get cheaper or that cess will no longer apply,” the advisory said.
FADA’s Position
Saharsh Damani, CEO of FADA, underlined that the association is closely engaging with the Finance Ministry, Heavy Industries Ministry, Commerce & Industries Ministry, GST Council, and OEMs to ensure dealer concerns are addressed.
“As a responsible industry body, we urge members to base all decisions on official announcements and not rumours. The festive season is too important for dealers to risk over-commitments or miscommunication,” Damani said.
Industry Impact
While GST 2.0 is expected to simplify the tax regime in the long run, the short-term uncertainty could influence stocking patterns, discounting strategies, and consumer sentiment. For dealers, already managing working capital cycles tightly, FADA’s advisory is a reminder that prudence may be more valuable than chasing volumes in the weeks leading up to Diwali.
As the industry awaits clarity from the GST Council, the festive season of 2025 is shaping up to be as much about navigating regulatory uncertainty as it is about capitalising on demand.