The central government is likely to lower the Goods and Services Tax (GST) on small cars to 18% from the current 28% as part of sweeping consumption tax cuts.
The reduction, part of a wider programme of tax cuts announced by Prime Minister Narendra Modi on Friday, is expected to boost sales of the country’s largest carmaker, Maruti Suzuki, as well as Hyundai and Tata Motors.
The government has suggested reducing GST on small petrol and diesel cars to 18% from 28%, a source told Reuters.
GST on health and life insurance premiums may also be lowered to 5% or even zero from the current 18%, the same source said.
The tax cuts, if approved, are expected to be announced by Diwali, the major five-day Hindu festival in October which is also the country’s biggest shopping season.
Sales of small cars--defined as petrol vehicles with engine capacity below 1200cc and diesel vehicles below 1500cc, and not exceeding four metres in length--have slowed in recent years as buyers shifted to larger, feature-rich SUVs.
Small cars accounted for around one-third of the 43 lakh passenger vehicles sold in India, the world’s third-largest automobile market, in the last financial year, down from nearly 50% before Covid.
The tax cut will be a major gain for Maruti, whose market share has fallen to about 40% from more than 50% over the past five years as sales of its small models such as Alto, Dzire and Wagon-R declined. The segment represents half of all Maruti’s sales. The company is majority-owned by Japan’s Suzuki Motor. Carmakers Hyundai Motor India and Tata Motors also stand to benefit.
Cars with larger engine capacity currently attract a 28% GST and an additional levy of up to 22%, resulting in total taxes of around 50%. These may come under a new special rate of 40%, the source said.
The source added that details are still being finalised, including whether an extra levy should be applied above 40% to maintain the overall tax burden for big cars in the 43%–50% range.
