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SUVs, Sedans Could Get Cheaper as GST Cut to 40% Likely: Report

admin | August 22, 2025 11:22 PM CST

The GST on luxury and sin goods, including automobiles, is expected to decrease from 50% to 40%. This could lead to significant price drops for vehicles ranging from small 2wheelers to large SUVs, although new luxury car tax is also being considered.

Not only will small vehicles and two-wheelers likely experience significant price reductions, but huge sedans and SUVs as well, as the goods and services tax (GST) is anticipated to drop from the existing slab of up to 50% to the projected 40% for luxury and sin items. However, there is also concern that a new tax on luxury cars would be proposed by the GST Council. Some states called for a cess on top of the 40% tax during a ministerial panel meeting on rate rationalisation on Thursday. SUVs and sedans that are longer than four meters and have engines that are larger than a specific amount are now subject to 28% GST and 22% cess.

A final decision on rates will be taken by the GST Council, led by Union finance minister Nirmala Sitharaman next month, amid indications that the Centre is keen on a flat 40% levy on a handful of sin and luxury goods without any cess.

According to TOI report, government sources suggest that the cess will be eliminated since it was intended to be imposed for five years in order to "compensate" states for "revenue loss" resulting from the adoption of the GST, but it was prolonged for an additional three years in order to offset losses resulting from COVID-19.The absolute benefit (in terms of value) for those purchasing SUVs may be greater, even if the burden for small vehicles and two-wheelers is predicted to decrease from 29% to 18%.

The reduction will lessen the difference with electric cars, which are subject to 5% GST, for all vehicles with internal combustion engines or those that run on petrol and diesel, including hybrids. Since the GST differential would be 13 percentage points instead of the present 23 percentage points, many view this as a deterrent for EVs, especially in the more cost-sensitive two-wheeler market. EVs are more expensive to buy but less expensive to operate, and the initial expense is frequently a barrier to admission.

Although the auto industry is often accused of pocketing the gains, government sources said there will be pressure on companies to pass on the benefits, especially to boost demand, amid sluggish sales.