The Ministry of Heavy Industries (MHI) issued a fact sheet titled ‘GST Reforms in Automobiles—Cheaper Cars, More Accessibility’ on September 11, stating that rationalised GST rates along with Make in India and PLI schemes will help create jobs, strengthen MSMEs, boost exports, and promote cleaner mobility.
According to the report, reduced GST rates will boost demand, supporting automobile manufacturers and related sectors such as steel, plastics, tyres, and glass. Rising vehicle sales are expected to create a multiplier effect across the supply chain, benefitting micro, small and medium enterprises (MSMEs) in manufacturing dealerships, and services nationwide.
India’s automobile sector currently sustains more than 3.5 crore jobs, both direct and indirect. The GST reduction is expected to push demand further, generating new employment in dealerships, logistics, and MSME suppliers, while also supporting informal roles such as mechanics, drivers, and small repair workshops in rural and semi-urban areas.
GST on two-wheelers up to 350cc has been reduced from 28% to 18%, making bikes more affordable. This change will ease access for students, and lower-middle-income households, while also supporting farmers, traders, and daily wage earners in rural and semi-urban regions where motorcycles dominate mobility.
The GST rate on small cars with petrol engines up to 1200cc and diesel engines up to 1500cc within four metres has been reduced from 28% to 18%. This cut will make vehicles more affordable, boost sales in smaller towns, and support finance companies and service providers.
Under the new rate structure, large cars will attract a flat 40% GST without any cess, compared to the earlier 35 to 50%. The cess, previously collected for government schemes, has been removed. This simplifies taxation, allows full input tax credit, lowers costs for aspirational buyers, and makes pricing more predictable for the industry.
GST on road tractors with engines below 1800cc has been reduced from 12% to 5% , while larger tractors now attract 18% instead of 28%. Tractor components such as tyres, tubes, and hydraulic pumps are also taxed at 5%.
Trucks and delivery vans will now be taxed at 18% instead of 28%. The lower upfront cost will reduce freight expenses, helping sectors like agriculture, cement, and Fast-moving consumer goods (FMCG) supply chains.
Buses with a seating capacity of more than 10 passengers will now attract 18% GST instead of 28%. Reduced upfront costs are expected to increase demand from schools, tour operators, state transport undertakings, and corporate fleets.
