GST rate cuts to spur growth, benefit first-time buyers, middle-income families: Auto industry

New Delhi: 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, players in the auto industry said on Thursday.

The simplification of tax structure and lower rates for mass mobility is a decisive step that will boost affordability and spur demand, they said, while also hoping that the government will soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.

Society of India Automobile Manufacturers (SIAM) President Shailesh Chandra said the automobile industry welcomes the government's decision to reduce the GST on vehicles to 18 per cent and 40 per cent, especially in this festive season.

He further said, "This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector.

"Making vehicles more affordable, particularly in the entry-level segment; these announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility."

Expressing similar sentiments, Federation of Automobile Dealers' Associations (FADA) President C S Vigneshwar said the "bold and progressive reforms" simplify the tax structure, lower rates for mass mobility, and bring consensus across all states.

"This is a decisive step that will boost affordability, spur demand, and make India's mobility ecosystem stronger and more inclusive," he said, adding, "as the country heads into the peak festive season, glitch-free and implementation will be the key to ensuring that the benefits seamlessly reach customers".

TVS Motor Company Chairman Sudarshan Venu said the GST rate cut is a major move by the government to further turbocharge growth.

"It will significantly boost consumption across segments of the society.

"For our industry especially, it is a welcome move as it will help two-wheelers become more accessible and also help those looking to upgrade," he added.

Chandra also welcomed the continuation of the GST rate of 5 per cent on electric vehicles, saying it "will help sustain the ongoing momentum towards sustainable mobility".

The resolution of classification interpretations and the correction of the inverted duty structure will greatly streamline business processes across the automotive industry, supporting ease of doing business, he added.

Chandra also noted that the auto industry is "confident that the government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition".

Likewise, Vigneshwar said, "One area that may need earliest clarification is about levy and treatment of cess balances currently lying in dealers' books, so that there is no ambiguity during transition."

The GST Council on Wednesday approved limiting slabs to 5 per cent and 18 per cent effective from September 22, the first day of Navaratri.

Under it petrol, LPG and CNG vehicles of less than 1,200 cc and not more than 4,000 mm length and diesel vehicles of up to 1,500 cc and 4,000 mm length would move to the 18 per cent rate.

Earlier, these two categories attracted 28 per cent GST with compensation cess of 1 per cent, and 28 per cent GST with 3 per cent compensation cess, respectively.

Motorcycles up to 350 cc would be taxed at a lower GST of 18 per cent against 28 per cent earlier.

All automobiles above 1,200 cc and longer than 4,000 mm as well as motorcycles above 350 cc and racing cars will be charged with a 40 per cent levy.

Small hybrid cars will also benefit, while EVs will continue to be charged at 5 per cent.