In contrast, midsize and luxury vehicles will now attract a GST rate of 40% without the compensation cess, ranging between 17-22%, making these vehicles cheaper, despite moving to a higher GST rate

PTI New Delhi

Small car prices are likely to see a price drop ranging between Rs 45,000 to Rs 1 lakh due to GST rate rationalisation announced in the automotive sector, industry observers said on Thursday. The GST rate rejig is expected to revive demand in the entry-level segment, especially in the smaller towns and cities, in the ongoing festive season.

The small car segment accounted for just 31 per cent of the total PV sales in FY 2024-2,5 and the share has further slipped to 27 per cent between the April-July period of 2025. "In the small car segment, if the GST comes down by 10 per cent, the retail price for the customers will come down by 8.5-9 per cent, and that kind of reduction is substantial," Maruti Suzuki India Chairman RC Bhargava told PTI.

"In terms of quantum, this 9 per cent reduction would account for Rs 45,000-Rs 50,000 at a minimum level. So the cheapest car could see a drop in price of about Rs 45,000," he added.

Bhargava noted that this kind of price reduction would help bring customers back to the market. "The growth of the small car segment will accelerate and is likely to touch 10 per cent." Grant Thornton Bharat Partner Saket Mehra said the rate cut could significantly lower acquisition costs in the small cars by up to Rs 1 lakh (accounting for a 12 per cent drop in process), which is expected to revive demand, especially in Tier 2, 3 cities, with the festive season approaching.

In contrast, midsize and luxury vehicles will now attract a GST rate of 40 per cent without the compensation cess, ranging between 17-22 per cent, making these vehicles cheaper, despite moving to a higher GST rate.

The GST Council's decision to cut tax rates on various categories of automobiles is timely and will inject fresh momentum into the Indian automotive sector and significantly benefit first-time buyers and middle-income families, auto industry players said.