GST Rates Revision: Impact on Auto Sector

4 Sep 2025 , 12:33 PM

With a vision to boost demand in the automobile sector, the government has announced restructuring of Goods and Services Tax (GST) rates for vehicles and auto parts. The government has removed the Compensation Cess, hence making vehicles more economical in several categories.

As part of the changes, the existing 12% and 28% slabs have been removed. While 5% and 18% slabs are in place. In addition to this, a new 40% slab has been levied for luxury and sin goods.

New GST Rate Structure:

• 18% GST Rates: This rate is applicable to liquefied natural gas (LNG), petrol, hybrid, and compressed natural gas (CNG). As per the notification, petrol cars having up to 1,200cc engine, and diesel vehicles up to 1,500cc engine and under 4 meters length shall be subject to the new rate. This also includes, Motorcycles with up to 350cc engine capacity, Commercial vehicles for goods transport, Tractors (engine capacity above 1,800cc), Ambulances and buses, Three-wheelers, Auto parts (other than tractors), Tyres, etc.

• 5% GST Rates: The new 5% slab is applicable to Electric Vehicles, Tractors up to 1,800cc engine capacity, Bicycles and other cycles, and Tanks,Tractor parts, Tractor tyres and tubes, and other armoured fighting vehicles.

• 40% GST Rates: It is applicable on high-end cars, petrol cars having an engine capacity above 1,200cc, and diesel cars above 1,500cc, or length exceeding 4 meters. Furthermore, motorcycles above 350cc shall be chargeable to 40% GST slab.

These companies will benefit from the changes:

For benefit registered on small cars, Maruti Suzuki, Tata Motors, and Hyundai, etc. will be beneficiaries. Two-wheelers (up to 350cc): Hero MotoCorp, Bajaj Auto, TVS, Eicher, etc.

Mahindra & Mahindra, Escorts will benefit from the changes announced in the Tractor segment.

Bajaj Auto, TVS, will be beneficiaries of changes in the three-wheeler segment. While for armoured vehicles, the benefits will pass on to Tata Motors, Bharat Forge, etc.

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