In a mega boost to the auto sector, the Union government is believed to have recommended lowering GST on small cars and two-wheelers to 18% from the current slab of 28%, sources said. Also, in what could come as a major reprieve to the farm sector, GST on tractors is also likely to be reduced to 5% from the current 12%.

The move is expected to provide a fillip to the sector, which has been witnessing a slowdown for the past couple of months.

“GST on small petrol cars less than four meters in length and having an engine capacity of less than 1200 cc has been recommended to be brought down to 18% from the current 28%. Also, GST on two-wheelers with an engine capacity of less than 350 cc has been proposed to be lowered to 18% from 28% currently,” said a source.

It may be noted that the total tax on small petrol cars less than four meters in length and having an engine capacity of less than 1200 cc is 29%, including 1% cess. That entails a GST reduction of a total of 11% on the small cars.

“As far as the tractors are concerned, the government has proposed to move them to the 5% slab from the current 12% slab,” said the source, adding that several other farm equipment items, too, may be shifted to the lower slab of 5%.

In his Independence Day speech, Prime Minister Narendra Modi announced the next generation reforms in GST and the lowering of the taxes by Diwali this year.

Sources later pointed out that the Centre has proposed a two-rate GST structure comprising standard rate 5% and 18%, thereby doing away with the 28% and 12% GST rates. An additional GST slab of 40%, too, has been proposed for the sin goods. Sources indicated that only five to seven items will be under the 40% slab.

The proposals about the two-rate GST structure have been sent by the Ministry of Finance to the GoMs on rate rationalisation, and will shortly be sent to the GST Council. The GST Council meeting is likely to be held either next month or in October.