The GST Council’s decision to slash the tax rate on small cars from 28-31% to 18% and on large cars from 43-50% to a flat rate of 40% will benefit first-time buyers and middle-income families, according to the Society of Indian Automobile Manufacturers (SIAM).

“The automobile industry welcomes the government’s decision to reduce the GST on vehicles to 18% and 40%, from earlier rates of 28% to 31% and 43% to 50%, respectively, especially in this festive season,” Shailesh Chandra, president of SIAM, said in a statement.

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

Small cars have seen a decline in demand over the past few years as potential buyers no longer find them affordable due to price hikes amid stricter emission and safety norms.

The GST rate cut will make vehicles more affordable, particularly in the entry-level segment, said Chandra. “These announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility,” he added.

The auto industry body lauded the GST Council’s move to keep electric vehicles under 5% GST rate, stating it will help sustain the ongoing momentum towards sustainable mobility.

As the new GST rates are applicable from September 22, 2025, C S Vigneshwar, president of the Federation of Automobile Dealers Associations (FADA), said that one area that may need clarification is the levy and treatment of cess balances currently lying in dealers’ books, so that there is no ambiguity during transition.

SIAM, too, expressed confidence that the government will soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition.

Carmakers had been calibrating vehicle dispatches to the dealerships ahead of the GST Council meeting. Automakers were more comfortable in shipping small cars to dealers and not big SUVs because the cess on small cars was just 1-3%.

As the country heads into the peak festive season, a glitch-free implementation will be the key to ensuring that the benefits seamlessly reach customers, said FADA.

Calling the 56th GST Council meeting a watershed moment for India’s automobile retail industry, FADA welcomed the progressive GST reforms which simplify the tax structure and lower rates for mass mobility. “This is a decisive step that will boost affordability, spur demand, and make India’s mobility ecosystem stronger and more inclusive,” it said.

The Automotive Component Manufacturers Association of India (ACMA), too, welcomed the landmark decision of the GST Council to bring all auto components under a uniform 18% GST slab. The rate rationalisation of GST to a uniform 18% across all auto components has been a long-standing demand of ACMA. “This decisive step will curb the grey market, encourage the use of quality compliant components, ease compliance, and support MSMEs - thereby strengthening the global competitiveness and resilience of India’s $80.2 billion auto component industry,” ACMA said.