The government on Wednesday announced sharp cuts in Goods and Services Tax (GST) rates across a wide swath of vehicles and equipment in a bid to spur demand.
GST on small cars, motorcycles up to 350cc, three-wheelers, buses, trucks, and ambulances has been reduced to 18% from 28%, Finance Minister and GST Council Chairperson Nirmala Sitharaman said after the 56th GST Council meeting. The new rates will take effect from September 22.
Petrol and diesel hybrid cars previously taxed at 28% will now attract only 18% GST, provided they fall within the 1,200cc/4,000mm (petrol) and 1,500cc/4,000mm (diesel) limits.
In a major relief for the auto components sector, the Council also decided to introduce a uniform GST rate of 18% on all auto parts, irrespective of their HS codes.
The agriculture sector, too, will benefit from lower levies. Tractors, soil preparation and cultivation machinery, harvesters, threshers, straw and fodder balers, grass sowing equipment, hay movers, composting machines, and other such agricultural, horticultural, and forestry machines will now attract 5% GST instead of 12%.
Similarly, GST on 12 specified bio-pesticides has been cut from 12% to 5%, aimed at reducing input costs for farmers and encouraging sustainable agricultural practices.
Nirmala Sitharaman, the Finance Minister said the decision is aimed at supporting the “common man, labour-intensive sectors, and agriculture,” while also correcting long-pending anomalies in the tax structure. “Every tax levied on the common man’s daily use items and essential sectors has been reviewed, and in most cases, rates have come down drastically,” she said.
"The GST reduction on small cars to 18% is a strategic boost for India’s auto sector, especially as festive demand builds from Navratri through Diwali. Beyond reviving the entry-level passenger vehicle segment, this move unlocks real potential for affordable innovation in the sub-4 meter category. With lower acquisition costs, Indian consumers can now access feature-rich, compact vehicles without a premium price tag. We expect Maruti, Tata, and Mahindra to lead this shift, especially with popular small crossovers like Fronx and Punch poised to gain significant traction," said Gaurav Vangaal, Associate Director for Light Vehicle Production Forecast at S&P Global Mobility.