Auto industry hails GST cut, but calls for smooth transition and EV focus

New Delhi: The GST Council’s sweeping reform has already started sending ripples through India’s automobile sector. With small cars, two-wheelers up to 350 cc, and auto parts now taxed at 18% instead of 28%, and larger cars and SUVs simplified under a flat 40% GST, the industry has come out with a mix of cheer, caution, and a few appeals for further clarity.

Industry leaders from automakers to component manufacturers see the move as a major boost for affordability and demand, but there’s equal concern over how the transition will play out on unsold inventory and whether electric vehicles will continue to enjoy special focus.

Anand Mahindra, Chairman of the Mahindra Group, said the cut is just the beginning. He linked the tax overhaul to the need for faster reforms, arguing that only deeper changes will spark consumption and investment. In his words, India’s voice in the global economy will amplify if growth is fueled by continuous reforms. He even invoked Swami Vivekananda’s call to "arise, awake, and stop not till the goal is reached.”

Tata Motors’ Executive Director Girish Wagh described the rate cut on commercial vehicles as a pivotal reform. He said the reduction of GST to 18% on trucks, buses and ambulances would accelerate fleet modernisation, improve affordability for transporters, and boost liquidity across the ecosystem. Wagh added that lowering GST on hydrogen fuel cells to 5% is a forward-looking step that strengthens India’s commitment to clean energy and zero-emission mobility. He said the move is likely to act as a catalyst for sustainable growth in logistics and public transport.

Venkatram Mamillapalle, Managing Director of Renault India, said the GST rationalisation into 5% and 18% slabs is a landmark reform and called it an early festive gift for Indian households. He pointed out that reducing GST on entry-level cars and auto parts would make personal mobility more affordable. Mamillapalle added that cuts on tractors, agri-inputs, and farm equipment would lift rural demand, strengthen agri-linked enterprises, and fuel aspirations for car ownership in Tier 2, Tier 3, and rural markets. He said this shift could accelerate both rural and urban demand, supporting manufacturing and long-term economic growth.

Saurabh Agarwal, Partner and Automotive Tax Leader at EY India, welcomed the simplification. He said reducing GST on vehicles and parts would not only make them more affordable but also end years of disputes over complex classifications. He highlighted that the scrapping of cess is a pragmatic move for a sector that contributes heavily to GDP. Agarwal, however, flagged that state-level incentives tied to GST rates may now need to be renegotiated, which could shift financial planning for automakers.

Ajinkya Firodia, Vice Chairman of Kinetic India, called the cut "timely” and said it would boost the economy broadly. He also made a pointed appeal for the government to continue special treatment for the electric vehicle segment. According to him, keeping EV two-wheelers affordable is essential for India’s sustainable growth and competitiveness, and schemes that support adoption must not lose momentum.

Sheena Sareen, Partner at Deloitte India, explained that while the rationalisation reduces rates significantly, the sudden change could put dealers under stress. She said dealers with vehicles bought at older, higher tax slabs risk holding stranded costs, unless the government creates a mechanism to refund the locked-in cess. Sareen added that the period until September 22, when the new structure takes effect, will be critical to avoid disruption in supply chains.

The Automotive Component Manufacturers Association (ACMA) went a step further, calling the GST decision "historic.” President Shradha Suri Marwah said a uniform 18% slab for auto parts was a long-standing demand. She argued this move would curb the grey market, improve compliance, and strengthen India’s USD 80.2 billion (₹6.8 lakh crore) auto component industry. She also welcomed the approval for faster export refunds, which she said would ease liquidity for smaller exporters.

The Society of Indian Automobile Manufacturers (SIAM) called the reform timely ahead of the festive buying season. Its president, Shailesh Chandra, said lower GST on vehicles would help middle-class families and first-time buyers, improving access to personal mobility. He also thanked the government for retaining the 5% GST on electric vehicles, which will help sustain India’s EV momentum. Chandra urged the government to soon notify rules for cess adjustment on unsold vehicles to ensure the transition benefits consumers smoothly.

For consumers, the impact is straightforward. Small cars like the Swift, Alto, and Tata Tiago will become cheaper, as will motorcycles under 350 cc. Auto parts and spares are also down to 18%, which could indirectly bring down servicing costs. Larger SUVs like the Scorpio, Harrier, or Toyota Innova Crysta now face 40% GST, but since this replaces a 43–50% tax earlier, buyers here also get some relief.

The bigger test, however, will be how quickly the industry adapts to the new slabs and passes on benefits. Automakers are confident demand will rise, but dealers are hoping for clear rules on managing unsold inventory taxed at old rates.