GST 2.0 impact: Small cars, tractors to get cheaper ahead of festive sales

Aiming to provide relief to the common man, the government has sharply cut the GST levied on small cars to make them more affordable

Passenger vehicles, from compact cars to mid-size models, are set to become marginally cheaper after Union Finance Minister Nirmala Sitharaman outlined a slate of reforms at the 56th meeting of the Goods and Services Tax (GST) Council in New Delhi on Wednesday.

 

Aiming to provide relief to the common man ahead of festive season, the government has sharply cut the GST levied on small cars to make them more affordable. Small passenger cars of up to 1200 cc and under 4 metres in length, powered by petrol, liquefied petroleum gas (LPG), compressed natural gas (CNG), will now be charged at 18 per cent from 28 per cent.

 

 

Additionally, GST on diesel cars of up to 1500 cc will also come down from 28 per cent to 18 per cent. Ambulances, three-wheelers, and small hybrid cars will also benefit from the same reduction to 18 per cent.  "We view the GST simplification as a step in the right direction – one that supports industry growth and helps us expand the market. It also enhances transparency and aligns with India’s economic vision," said Head of Audi India Balbir Singh Dhillon. 

 

Under the new reforms, passenger transport vehicles carrying 10 or more persons (including the driver) will see GST fall from 28 per cent to 18 per cent. However, buses for use in public transport, which exclusively run on bio-fuels, are not included as they already attract 18 per cent.   

 

The changes in GST will come into effect from September 22.

How will two-wheelers be affected?

Motorcycles, including mopeds, with engine capacity not exceeding 350 cc will be taxed at 18 per cent, down from the existing 28 per cent. The GST on bicycles and other cycles, including delivery tricycles that are not motorised, is reduced from 12 per cent to 5 per cent. 

Meanwhile, parts and accessories of bicycles will also be charged at 5 per cent from the existing 12 per cent.  Sudarshan Venu, chairman, TVS Motor Company, said, "We applaud the government for taking consistent steps towards boosting growth and enhancing the growing middle class’s spending power. The GST tax cuts is a major move by the government to further turbocharge growth. It will significantly boost consumption across segments. For our industry especially, it’s a welcome move as it will help two-wheelers become more accessible and also help those looking to upgrade." 

 

Ajinkya Firodia, vice-chairman of Kinetic India welcomed the timely GST reform by the government that aligns with its vision for Atmanirbhar Bharat. “Our only humble request is that the EV sector continues to be kept in special focus. To ensure higher penetration of EVs, especially two-wheelers, we urge the continuation of supportive schemes so that this transformative sector does not face any adverse impact. EV adoption is critical for India’s sustainable growth and competitiveness,” Firodia said. 

What is moving to the 5% bracket?

Fuel cell motor vehicles, including hydrogen-based vehicles, will now attract a lower GST of 5 per cent instead of 12 per cent. Similarly, tractors will also see a reduction from 12 per cent to 5 per cent. However, road tractors for semi-trailers above 1800 cc will have GST cut from 28 per cent to 18 per cent.

 

In fact, all vehicles meant for agricultural and manual transport purposes will now attract a lower GST rate. According to a PIB statement, GST on self-loading or self-unloading trailers used for agriculture will be charged at 5 per cent, instead of the existing 12 per cent. Hand-propelled vehicles such as hand carts, rickshaws, and animal-drawn vehicles will also be charged at 5 per cent from the current 12 per cent. 

 

Hailing the move, Minister of Road Transport & Highways Nitin Gadkari said, “These reforms mark a transformative step—bringing relief to farmers, MSMEs, small traders, women, youth, and the middle class, while ensuring ease of doing business across India. This is more than just a policy change; it’s a step towards empowering citizens and strengthening our economy.” 

What will attract 40% GST?

Apart from the two rationalised GST slabs of 5 per cent and 8 per cent, the government has also introduced a 40 per cent de-merit rate. This highest slab will apply to ‘sin goods’ and luxury items. Let’s find out the categories that will attract this elevated GST rate. 

Larger motor cars or luxury cars and certain hybrid vehicles and electric vehicles, exceeding the limits as mentioned earlier, will now be charged 40 per cent GST, up from 28 per cent. In case of two-wheelers, motorbikes with engine capacity exceeding 350 cc will also attract a higher GST of 40 per cent from the current 28 per cent. 

Moreover, aircraft used for personal purposes will also attract the de-merit rate of 40 per cent. Similarly, yachts and other vessels used for pleasure or sports will be charged at 40 per cent from 28 per cent.

 

Commenting on the reforms, Anand Mahindra, chairman of, Mahindra Group, said, “More and faster reforms are the surest way to unleash consumption and investment. Those, in turn, will expand the economy and amplify India’s voice in the world.” Seeking more reforms, he quoted Swami Vivekananda writing, “Arise, awake, and stop not till the goal is reached.”

In a snapshot: What gets cheaper/costlier?

What gets cheaper:

• Fuel cell/ hydrogen vehicles: 12% → 5%
• Tractors (≤1800cc): 12% → 5%
• Road tractors for semi-trailers (>1800cc): 28% → 18%
• Passenger transport vehicles (10+ persons, except bio-fuel buses): 28% → 18%

Small cars

• Petrol / LPG / CNG (≤1200cc, ≤4m length): 28% → 18%
• Diesel (≤1500cc, ≤4m length): 28% → 18%
• Ambulances: 28% → 18%
• Three-wheelers: 28% → 18%
• Small hybrid cars (≤1200cc petrol, ≤1500cc diesel, ≤4m length): 28% → 18%
• Goods transport vehicles (non-refrigerated): 28% → 18%

Agricultural vehicles

• Self-loading / self-unloading trailers: 12% → 5%
• Hand-propelled vehicles (hand carts, rickshaws, etc.) and animal-drawn vehicles: 12% → 5%

What gets costlier:

• Large motor cars (general category): 28% → 40%
• Large hybrid vehicles (petrol >1200cc / diesel >1500cc or length >4m): 28% → 40%
• Personal-use aircraft: 28% → 40%