Just a few months ahead of Diwali, Finance Minister Nirmala Sitharaman announced slashed GST rates, resulting in a price drop for various items from September 22. The current four slabs – 5, 12, 18 and 28 percent have now been reduced to the two-rate structure of 5 percent and 18 percent. With this announcement, small cars, auto parts, renewable energy components, appliances, medicines, insurance, tractors, cement, footwear, food items, beverages and various household essentials will now be cheaper.
While motorcycles upto 350 cc will be taxed at 18 percent as against 28 percent, electric vehicles will continue to be charged at 5 percent GST. Meanwhile, there will be reduction in GST on auto components from 28 percent to 18 percent.
Petrol, LPG and CNG vehicles of up to 1,200 cc and not longer than 4,000 mm length as well as diesel vehicles of up to 1,500 cc and 4,000 mm length, would move from 28 percent to 18 percent rate.
“Small cars will attract 18 per cent GST while others will attract 40 per cent. The definition is decided by the Ministry of Road Transport and Highways,” said Arvind Shrivastava, Secretary, Department of Revenue, Ministry of Finance, adding that small EVs will continue to attract 5 percent GST.
However, EVs in price bands between INR 20 lakh and INR 40 lakh appear to be taxed at the 18 per cent GST rate.
Commenting on the new GST rates, Saurabh Agarwal, Partner & Automotive Tax Leader, EY India for the Auto sector, said, “The rationalization of GST rates on automotive vehicles and parts is a truly welcome and significant development. By making vehicles more affordable across all segments, this move will not only boost consumer spending but also simplify complex classification disputes that have long burdened the industry. The discontinuance of the cess is a particularly pragmatic step, which will provide much-needed support to a sector that is a vital contributor to our nation’s GDP.
While this change is broadly positive, the automotive industry must now carefully reassess the financial impact of state incentives and subsidies, which are often linked to GST rates. This may necessitate a renegotiation with state governments to address potential changes in costs and clawback periods. I am also encouraged by the pragmatic stance on anti-profiteering. A competitive market like ours naturally ensures that the benefits of tax cuts are passed on to consumers. Avoiding excessive administrative burdens will allow these crucial reforms to take root smoothly, without hindering the very progress they are designed to achieve. We are highly optimistic about this new chapter for the automotive sector under the GST framework.”
Ajinkya Firodia, Vice Chairman of Kinetic India added, “We welcome this very positive and timely move by the Government. The GST rate cut will give a strong boost to the economy in an unprecedented manner. Essentials, including food, automobiles, and several other key sectors, have been rightly covered under this decision. This step aligns with the vision of making India self-sufficient—an Atmanirbhar Bharat. It will lower interest rates, facilitate employment generation, and encourage capacity augmentation across industries. Our only humble request is that the electric vehicle (EV) sector continues to be kept in special focus. To ensure higher penetration of EVs, especially two-wheelers, we urge the continuation of supportive schemes so that this transformative sector does not face any adverse impact. EV adoption is critical for India’s sustainable growth and competitiveness.”
Talking about GST rate reduction on renewable energy goods, Dhruv Sharma, CEO, Jupiter International Limited says, “GST Council has taken a historic step to reduce taxes on renewable energy components to 5 percent from 12 percent. This move not only brings down the cost of solar and clean energy solutions but also energizes the entire ecosystem—manufacturers, developers, and end users alike. It will also help in India’s clean energy momentum and make sustainable solutions more accessible to millions.”