Vehicle prices to fall as GST slabs slashed; ICE cars, bikes to shift to 18%: Report

The move, aimed at simplifying the tax regime, is expected to significantly reduce vehicle prices across categories.

The current GST framework has four slabs — 5%, 12%, 18% and 28%. The GoM has backed a two-slab system that will retain only 5% and 18%, eliminating the 12% and 28% brackets.

Impact on vehicle categories

At present, all internal combustion engine (ICE) vehicles — passenger vehicles, two-wheelers, three-wheelers and commercial vehicles — fall under the 28% slab.

Electric vehicles (EVs) attract 5% GST, while hydrogen fuel cell vehicles (FCEVs) are taxed at 12%.

Additionally, the government imposes a compensation cess ranging from nil to 22% depending on the segment.

With the proposed rationalisation, all ICE vehicles are expected to be brought under the 18% slab. However, luxury cars are likely to be shifted to a new 40% bracket. The GST Council is expected to deliberate further before final implementation.

Direct price reduction

Since the ex-showroom price includes GST, a cut from 28% to 18% will directly lower both ex-showroom and on-road prices.

PM Modi calls it ‘double Diwali gift’

Addressing the nation on the 79th Independence Day, Prime Minister Narendra Modi said: "This Diwali, I am going to make it a double Diwali for you. This Diwali, you, fellow countrymen, are going to get a very big gift. In the last eight years, we have done a big reform of GST, reduced the tax burden across the country, simplified the tax regime, and after eight years, the need of the hour is that we should review it once. We started the review by setting up a high-power committee and also held discussions with the states.

"We are coming with the next generation of GST reforms, which will be a gift for you this Diwali. Taxes needed by the common man will be reduced substantially, and a lot of facilities will be increased. Our MSMEs, our small entrepreneurs, will get a huge benefit. Everyday items will become very cheap and that will also give a new boost to the economy."

Sector experts see major boost in demand

Analysts believe the rate cut will make vehicles more affordable, especially entry-level cars and two-wheelers, driving demand.

Maruti Suzuki India, Hyundai Motor India and Tata Motors are expected to benefit in the small car segment, while Hero MotoCorp, Honda Motorcycle & Scooter India, TVS Motor Company and Bajaj Auto are likely to gain in the entry-level two-wheeler space.

Anurag Singh, Advisor at Primus Partners, estimated that prices of a base variant of a popular entry-level car could fall by up to ₹36,000, while a top-selling commuter motorcycle may become cheaper by about ₹6,200, the Moneycontrol report said.

“In a price-sensitive market like India, such price drops are substantial,” he said, according to the report.

Industry reaction

Maruti Suzuki chairman R C Bhargava welcomed the move.

“It is a much-needed reform. I think the whole country was waiting for it. The government needs to be congratulated for what they are doing,” he told Moneycontrol.