A significant overhaul of India’s Goods and Services Tax (GST) is on the horizon, promising to make smaller cars much more affordable. The proposed changes aim to simplify the tax structure and boost the entry-level car market.
Current Vehicle Taxes
Currently, the tax burden on cars varies significantly:
- Small cars (under 4 meters in length with engines up to 1200cc) face a combined levy of 29% (28% GST + 1% cess) for petrol and 31% (28% GST + 3% cess) for diesel.
- Large cars and SUVs are hit with some of the highest global tax rates, ranging from 43% to 50%.
- Electric vehicles (EVs), in contrast, enjoy a much lower rate of just 5%, which is expected to stay the same.
The Proposed Overhaul
The new plan would streamline the system into a two-slab structure, with a special rate for luxury goods.
- Hatchbacks and compact sedans are expected to see the biggest relief, with their tax rate dropping to 18%. This is a massive cut of about 11 percentage points and should make these cars significantly cheaper.
- Large cars and SUVs would also see a tax reduction, moving to a special rate of 40%, down from the current 43-50% range. This 40% slab would be reserved for a handful of luxury items, including certain vehicles.
Industry experts believe this tax reset will help rebalance the market, which has recently seen a strong preference shift toward larger vehicles. By making small cars more accessible, the government hopes to encourage entry-level buyers and revitalize a key segment of the auto industry.