GST rejig to make entry-level cars cheaper by 8.5%: Crisil Intelligence

Under the new two-slab GST structure, small cars and mid-segment vehicles will see price cuts, while premium two-wheelers may get costlier

Under the new Goods and Services Tax (GST) structure, the prices of entry-level cars are likely to decline 8.5 per cent, followed by a 6.7 per cent reduction in premium vehicles, and a 3.5 per cent dip in the mid-level segment, said a report by Crisil Intelligence on Thursday.

 

Union Finance Minister Nirmala Sitharaman announced major GST reforms during the 56th meeting of the GST Council in New Delhi on Wednesday, covering multiple sectors, including automobiles, textiles, education, and more.

 

The government has rationalised GST under two simplified slabs of 18 per cent and 5 per cent, with a de-merit slab of 40 per cent. According to the new rules, small passenger cars, powered by petrol, liquefied petroleum gas (LPG), compressed natural gas (CNG), of up to 1,200 cc and under 4 metres in length, will now be charged at 18 per cent, down from 28 per cent.

 

Additionally, GST on diesel cars of up to 1,500 cc will also come down from 28 per cent to 18 per cent. The tax slab for electric vehicles (EVs) remained the same at 5 per cent.

Prices of passenger vehicles to decline: Crisil

According to the Crisil report, for internal combustion engine (ICE) and hybrid vehicles, the prices of entry-level hatchbacks like Wagon R, premium hatchbacks (Swift), compact sedans (Swift Dzire), and sub-compact sport utility vehicles (SUVs) below 1,200 cc petrol or 1,500 cc diesel engines (Punch) will decline 8.5 per cent. 

 

In the mid-level segment, prices of large sedans (Virtus), compact SUVs (Brezza), mid-SUVs (Creta), and multi-purpose vehicles (Ertiga) with engines below 1,500 cc will reduce 3.5 per cent.

 

However, vehicles above the specified limits will attract a flat GST rate of 40 per cent under the new reforms, without any additional cess. Prices of premium SUVs (XUV 700) and MPVs with engines above 1,500 cc (Innova) are also likely to fall 6.7 per cent.

Cost of premium two-wheelers to jump 7%

According to the revamped structure, two-wheelers, including motorcycles, mopeds with engine capacity not exceeding 350 cc, will be taxed at 18 per cent, down from the existing 28 per cent. Those exceeding will be charged at 40 per cent.

 

This will lead to a decline of 7.8 per cent in prices of entry-level ICE two-wheelers, while costs may surge 6.9 per cent in the premium segment, the report said.

Tractors, buses to become cheaper

As for other vehicles, tractors and hydrogen vehicles will be charged at 5 per cent, whereas buses, light commercial vehicles (LCVs), Medium and heavy commercial vehicles (MHCVs) will attract 18 per cent GST.

 

The report stated that prices of ICE tractors and fuel cell motor vehicles, including hydrogen vehicles, will decline 6.3 per cent. Meanwhile, prices of three-wheelers, LCVs, MHCVs and buses will reduce 7.8 per cent.

Growth margins

According to Crisil, passenger vehicles may see a marginal uptick (lower single-digit growth) in the financial year 2025-26 (FY26), while two-wheelers may see higher single-digit growth.

 

Moreover, tractors will see a continued growth of 4-7 per cent, while commercial vehicles are likely to see flattish-to-marginal-positive growth.

 

The report said that it hasn't factored in any pass-through that may happen from automotive component manufacturers to original equipment manufacturers (OEMs) in the form of GST reduction, as all automotive components have been brought under the ambit of 18 per cent.