New Delhi: The Goods and Services Tax (GST) Council has introduced significant rate cuts across various categories in the heavy industries sector, particularly impacting automobiles and their components. The revised GST rates aim to boost demand, stimulate manufacturing, and catalyze job creation across the ecosystem. Some of the key rate changes include:
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Two-Wheelers (Bikes up to 350cc): GST rate reduced from 28% to 18%, making bikes more affordable, especially benefiting youth, professionals, small traders, daily wage earners, and gig workers by lowering purchase costs and EMI on loans.
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Small Cars: GST reduced to 18% from 28%, applying to petrol cars under 1200cc and diesel cars under 1500cc with specific size limits. This reduction encourages first-time buyers and expands mobility in smaller towns, boosting auto finance and dealership networks.
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Large Cars: A flat rate of 40% is introduced with no additional cess, replacing the earlier 28% plus cess structure. The removal of cess simplifies tax compliance and allows full Input Tax Credit (ITC) eligibility, making large cars more affordable to aspirational buyers.
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Tractors (<1800cc): GST cut from 12% to 5%, with road tractors for semi-trailers (>1800cc) reduced from 28% to 18%. This supports increased mechanization in agriculture, benefiting MSMEs in ancillary manufacturing.
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Buses (10+ Seating Capacity): Goods and Services Tax lowered to 18% from 28%, reducing upfront costs and encouraging fleet expansion, modernization, and increased use of public transport.
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Commercial Goods Vehicles (Trucks, Delivery Vans): GST cut from 28% to 18% cuts upfront costs, reduces logistics rates, and benefits MSME transporters, improving export competitiveness.
Multiplier Effect on Ancillary Industries and Employment
Lower GST rates on automobiles are expected to stimulate sales of vehicles and their components such as tyres, batteries, glass, steel, plastics, and electronics. This will boost the production and revenue of MSMEs that form a critical part of the supply chain. The auto industry, supporting over 3.5 crore jobs directly and indirectly, anticipates expanded hiring in dealerships, transport services, logistics, and informal sectors like mechanics and service garages. The revival in sales will also promote retail loan growth, improve asset quality, and enhance financial inclusion in semi-urban India.
Positive Impact on Logistics and Supply Chains
Trucks, fundamental to India’s supply chain, transporting 65-70% of goods, will benefit significantly from reduced GST, lowering freight costs which cascades to cheaper movement of agricultural produce, cement, steel, FMCG, and e-commerce deliveries. The GST cut on third-party insurance on goods carriage from 12% to 5% also complements these logistics improvements, aligning with the government’s PM Gati Shakti and National Logistics Policy objectives.
Rationalization of Auto Components and Services
Auto component manufacturers enjoy the GST rate reduction to 18%, alongside services associated with goods and passenger transport receiving rate rationalization. The GST structure now provides the option of two rates—5% or 18%—for goods transportation and passenger transport businesses, offering flexibility aligned with operational needs.
Supporting Cleaner Mobility and ‘Make in India’
Besides fostering demand and job creation, GST cuts encourage the replacement of old vehicles with new, fuel-efficient models, promoting cleaner mobility. Rational GST rates give policy certainty, encouraging fresh investments, and bolster India’s position as a global manufacturing hub, consistent with the Make in India initiative.
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Source: PIB
