Diwali Gift for Auto Sector: Nifty Auto Jumps 4%; GST Likely to be Slashed from 28% to 18% on Cars, 2-Wheelers

As per news reports, in what may be a major boost for India's automobile sector ahead of Diwali, the government is expected to reduce the Goods and Services Tax (GST) on passenger vehicles and 2-wheelers from 28% to 18%. This move is aimed at reviving consumer sentiment and demand in a price-sensitive market.

Nifty Auto Index Top Gainer on Monday, August 18, 2025

On Monday, the Indian equity benchmark indices witnessed blistering gains with the Nifty Auto Index emerging as the top gainer with gains of nearly 4%. Hero MotoCorp and Maruti Suzuki India jumped over 7% as of 9:34 AM on August 18, 2025. 

GST Reduction Plan May Reshape Auto Market Landscape

Currently, all passenger vehicles fall under the 28% GST rate, with an additional compensation cess between 1% to 22%, which takes the overall taxation to as high as 50% in certain segments. For 2-wheelers, GST stands at 28% with no cess for engines up to 350cc and 3% for higher capacities. If the expected tax reduction is approved, it would significantly reduce ex-showroom prices of cars and bikes, especially in the entry-level and commuter segments suffering from affordability concerns.

Next-Gen GST Reform Could Bring Relief to Buyers and OEMs

As per reports, the proposed GST reform aims to simplify the current structure by retaining only the 5% and 18% slabs, eliminating the 12% and 28% categories. While essential goods will stay at 5%, automobiles could shift to 18%, excluding luxury vehicles, which might see a new 40% slab. This restructuring would reduce acquisition costs and potentially trigger a long-awaited volume recovery in the auto sector.

Read More: What is GST Return and GST Return Filing?!

Demand for Entry-Level Vehicles Poised for Recovery

Sales of budget-friendly cars and bikes have been hit due to rising input costs, stricter regulatory norms, and elevated interest rates. According to SIAM data, small car sales dropped 11.58% YoY to 12,79,467 units in FY25 from 14,47,060 in FY24. Entry-level motorcycles, which form a large portion of rural mobility demand, remained flat at 56,57,125 units.

PM Modi Hints at Festive Bonanza 

During his Independence Day speech, PM Modi hinted at upcoming tax reliefs, terming it the "next generation of GST reforms". He emphasised that everyday goods would become more affordable, aiding MSMEs and middle-class households. If accepted by the GST Council, this revised structure could take effect within weeks, offering a festive boost to both consumers and manufacturers.

Conclusion

The expected GST reduction on cars and 2-wheelers from 28% to 18% could revitalise the struggling mass-market vehicle segment. With improved affordability, the move may trigger higher sales volumes and support the manufacturing ecosystem, creating a ripple effect through the broader economy.

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