GST Council Meeting 2025: Big Relief Likely for Auto Sector; Small Cars & Two-Wheelers Prices Drop by 1 Lakh?

The 56th GST Council meeting, scheduled for September 3 and 4, 2025, in New Delhi, is expected to bring significant developments for India's automobile sector. One of the key items on the agenda is the rationalisation of the GST rate structure, which could result in a major price correction for small cars and two-wheelers-categories that form the backbone of personal transportation in India.

GST Council Meeting on September 3-4: May Scrap 12% and 28% Slabs, Introduce 40% for Luxury Items

As per the latest proposals, the Council is likely to deliberate on eliminating the 12% and 28% GST slabs, merging most goods into either the 5% or 18% categories. A new 40% slab may also be introduced, specifically targeting sin and luxury goods.

GST Structure for Two-Wheelers , Small Cars and Overall Automobile Sector

Currently, internal combustion engine (ICE) vehicles, particularly two-wheelers and small passenger cars, fall under three primary GST slabs. The majority of these vehicles attract a 28% GST rate. In some cases, particularly for mid- to high-end models, the GST is 18% plus an additional 17% cess, which significantly raises the effective tax burden. For select luxury or performance vehicles, the tax rate can go as high as 40%, making them part of the highest taxation category under the current GST framework.

This structure depends on factors such as engine size (cubic capacity), vehicle length, and fuel type (petrol or diesel). Most entry-level two-wheelers and small cars fall under the 28% GST bracket, along with additional cess in some cases, leading to an effective tax rate of 29% to 31%.

Big GST Cut Could Make Bikes and Cars Up to Rs 1 Lakh Cheaper; Check What Industry Experts are Expectating

Industry experts believe that if the 28% slab is merged into the 18% category, this could lead to a 10% reduction in prices, making two-wheelers and small cars significantly more affordable for the average Indian buyer.

Jyoti Prakash, Managing Partner at Equity and PMS, AlphaaMoney, explains that a 10% GST cut could result in a 7.5% reduction in on-road prices, which is substantial for first-time buyers and price-sensitive consumers.

'Demand for entry level PVs/2Ws should now attract 18% GST. Demand for such vehicles should see a spike given its price elasticity and a weak base. With 10% GST cut leads to 7.5% on-road price cut, growth in demand is expected to be healthy. The other automobiles which can loosely be called as luxury should attract 40% (assumed) GST. SUVs fall under this category," said Mr Jyoti Prakash.

Karthick Jonagadla, investment manager and founder of Quantace Research, adds that if GST rates are revised to a two-slab system (5% and 18%), and if the 22% cess on large SUVs remains, then demand could naturally shift towards commuter motorcycles and small hatchbacks.

For instance, a Rs 10 lakh (ex-tax) hatchback, currently taxed at 28%, would become approximately Rs 1 lakh cheaper under the 18% bracket-a significant enough saving to unlock demand in middle-class households.

Premium Bikes & Luxury Vehicles Could Face Additional GST Charges

However, premium bikes and luxury vehicles could face additional pressure. Big motorcycles may move from an effective 31% GST rate to 40%, increasing on-road prices by around 7% for models priced at Rs 3 lakh and above. Similarly, luxury electric vehicles (EVs) priced above Rs 40 lakh may see GST rates rise from 5% to as high as 40%, as per tax panel discussions as per Mr Karthik Jonagadla.

GST Impact on EVs and the Charging Ecosystem

While mainstream EVs are expected to retain their 5% GST rate, industry voices are calling for further rationalisation. Chetan Maini, Co-founder and Chairman of SUN Mobility, highlights a key issue: while EVs enjoy low taxation, standalone batteries, charging infrastructure, and battery-swapping services are still taxed at 18%.

"It would improve affordability, accelerate adoption across two, three, and even larger vehicles, and enable innovative models like battery leasing and BaaS. Also, with GST on ICE vehicles expected to go down from 28% to 18%, will impact EV adoption and growth," said Chetan Maini.

However, he also warns that if ICE vehicle GST drops to 18%, it could hurt EV competitiveness, unless the entire EV ecosystem also benefits from a tax correction.

Stock Market Expectations: Auto Stocks to Watch Amid GST Reshuffle

According to Karthick Jonagadla, founder of Quantace Research, a GST shift to 18% could benefit mass-market players like Hero MotoCorp, Bajaj Auto, TVS Motor, and Maruti Suzuki, as demand shifts toward commuter bikes and small cars. However, he notes that companies like Eicher Motors and luxury EV importers may face pressure if GST on high-end bikes and premium EVs rises to 40%.

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