GST cut may soon make cars, bikes a lot cheaper
18 Aug 2025

The Indian government is considering a major reduction in the Goods and Services Tax (GST) on passenger vehicles (PVs) and two-wheelers.

The move is aimed at making these vehicles more affordable for consumers.

Currently, all PVs attract a GST of 28%, along with a compensation cess of 1% to 22%, depending on engine capacity, length, and body type. This takes the total tax payable to as high as 50%.

Current GST rates for electric cars and 2-wheelers
Tax breakdown

Electric cars are currently taxed at a lower rate of 5%, with no compensation cess.

For two-wheelers, the GST is also 28%, but there is no compensation cess for models with an engine capacity of up to 350cc.

Models with an engine capacity over 350cc attract a compensation cess of 3%.

GoMs to meet to discuss tax structure revision
Tax proposal

Later this week, three Groups of Ministers (GoMs) set up by the GST Council will meet to review a proposal from the Center to rationalize its tax structure.

The revised tax structure proposes to keep 5% and 18% slabs while removing 12% and 28% slabs.

This would benefit mass-market cars and two-wheelers, but some items like luxury cars could still be taxed at up to 40%.

Proposed GST reduction to benefit entry-level models
GST reforms

Prime Minister Narendra Modi had earlier announced major GST reforms in his 79th Independence Day speech.

He said, "This Diwali, you, fellow countrymen, are going to get a very big gift."

The proposed GST reduction is likely to benefit entry-level models in the PV and two-wheeler segments.

These segments have been struggling due to high acquisition costs, rising interest rates, and cautious price-sensitive buyers.

Auto industry leaders have long been advocating tax revisions
Industry support

Maruti Suzuki India Chairman R C Bhargava has long been advocating tax revisions to boost demand for small cars.

Hero MotoCorp Executive Chairman Pawan Munjal and Bajaj Auto MD and CEO Rajiv Bajaj have also supported a reduction in GST on two-wheelers from 28% to 18%.

The proposed reduction would directly lower ex-showroom prices, especially for entry-level models where demand recovery has been slower.