New GST Rates 2025: Finance Minister Nirmala Sitharaman, after the GST Council meeting on September 3, 2025, unveiled a simplified tax structure with slabs at 5%, 18%, and 40%, set to take effect from September 22. The move, part of the New GST Rates 2025 reform, is expected to reshape car and two-wheeler prices while boosting demand in the mass market.
India’s automobile market is set for a major shift as the GST Council has slashed tax rates on small cars and two-wheelers, a move being hailed as a “bonanza for the common man.” From 22 September 2025, cars under four metres with petrol engines up to 1,200 cc or diesel engines up to 1,500 cc will attract just 18% GST instead of 28%, while larger and more powerful models will now face 40% GST.
Two-wheelers with engine capacity up to 350 cc also fall into the 18% bracket, giving a boost to mass-market players like Maruti Suzuki, Hyundai, Tata Motors, Hero MotoCorp, and Honda, while companies focusing on premium bikes and SUVs such as Bajaj Auto and Royal Enfield may feel the pinch.
New GST Rates 2025: What the New Slabs Mean for Cars, SUVs, and Two-Wheelers
The GST Council’s September 2025 decision marks one of the biggest overhauls for India’s automobile sector in recent years. By introducing a simplified structure with slabs at 5%, 18%, and 40%, the government has aimed to make tax compliance easier while also reducing costs for everyday consumers.
Under the new rules, small cars under four metres—with petrol engines up to 1,200 cc and diesel up to 1,500 cc—will now fall in the 18% GST bracket, sharply down from 28%. This is expected to boost demand in the entry-level car segment, where automakers like Maruti Suzuki, Hyundai, Tata Motors, and Mahindra dominate with their bestselling hatchbacks and compact SUVs.
For two-wheelers, motorcycles up to 350 cc also enjoy the 18% rate, giving a strong tailwind to commuter-bike leaders such as Hero MotoCorp and Honda Motorcycle & Scooter India. Larger and more powerful bikes, however, will face 40% GST, which could slow down the growth momentum for premium brands like Royal Enfield and Bajaj Auto that target the aspirational middleweight category.
On the other end of the spectrum, big SUVs, luxury cars, and hybrid vehicles will also be slotted into the 40% slab. While this sounds steep, it is actually slightly cheaper compared to the previous effective tax range of 43–50% (including cess). Coupled with the decision to bring auto parts under a uniform 18% GST, the overall cost of ownership—right from vehicle purchase to servicing—is likely to become more affordable.
Experts believe that the GST recast will boost consumer sentiment, expand sales volumes across categories, and provide a festive-season push to India’s auto market. For middle-class households, this tax reset may finally bring long-awaited relief after years of high vehicle prices driven by inflation and sluggish income growth.
Impact of New GST Rates 2025 on India’s Auto Industry
The GST Council’s decision to introduce a two-tier structure of 18% and 40% for automobiles is more than just a tax adjustment—it’s a strategic policy shift that reshapes India’s mobility landscape. For small cars under four metres, the reduced 18% GST is expected to drive demand among middle-class buyers, giving a strong push to Maruti Suzuki, Hyundai, Tata Motors, and Mahindra, whose bread-and-butter models fall squarely in this bracket.
The real disruption, however, comes in the two-wheeler segment, where motorcycles up to 350 cc now enjoy an 18% tax rate, bringing relief to millions of daily commuters. This directly benefits Hero MotoCorp and Honda, both leaders in the commuter-bike market. On the flip side, premium motorcycles above 350 cc, a segment championed by Royal Enfield and Bajaj Auto, will attract 40% GST, potentially slowing their expansion in the aspirational middleweight category.
How the GST Reforms Will Reshape Car Prices and Consumer Demand
The latest GST reset is expected to breathe new life into India’s auto market, particularly at the entry-level segment. By lowering taxes on small cars and commuter two-wheelers to 18%, the Council has eased affordability for buyers who had postponed purchases in recent years due to rising inflation and stagnant income growth.
At the premium end, big SUVs, luxury sedans, and hybrid vehicles will now fall under the 40% slab, making them marginally cheaper than before, as earlier tax plus cess pushed effective rates higher. With auto parts moving to a uniform 18%, costs across the supply chain—from manufacturing to after-sales service—are also set to decline, which may further lower ownership expenses for consumers.
Industry experts believe this simplified tax structure will not only boost sales volumes in the mass market but also help revive overall sentiment in India’s automobile sector ahead of the festive season.
