Whenever we buy a new car, at the time of delivery from the showroom, a photo of your car gives an adorable feeling. Many of us wait for that moment for many years just to post a picture with a dream car. Now, things might become easier because reports suggest that car prices may soon drop. Maybe you too will bring home a brand-new car. But why is this happening? Let’s explain.
This Diwali, the government brings a gift to people who are dreaming of having a new brand car. Prime Minister Narendra Modi, during the 79th Independence Day speech from the Red Fort, hinted at major reforms in GST. He mentioned that simplifying the tax system would help reduce complexities in the country. An empowered panel has already initiated talks with states, and the government is now gearing up for the next wave of GST reforms.
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According to Reuters, the government is considering reducing GST on small cars from 28% to 18%. If applied, this may considerably reduce the cost of small cars.
Currently:
- Small petrol cars (under 4 meters, up to 1200cc engines) are charged 28% GST + 1% cess.
- Small diesel cars (under 4 meters, up to 1500cc engines) are charged 28% GST + 3% cess.
- On top of that, there are RTO taxes.
Small cars have a major chunk of India’s auto market. In FY 2024–25, almost 45 lakh passenger vehicles were sold in India, and nearly a third of the total consisted of small vehicles. But sales of small cars have fallen. Before COVID, they witnessed almost half the market share, but by FY 2022–23 this had dropped to 34.4%, and in FY 2023–24 it fell further to 28%.
The strict safety and emission regulations have increased the production cost, making small cars more expensive. For example, Maruti Suzuki raised concerns as sales of popular vehicles like Baleno, Swift, Wagon R, Dzire, and Ignis all dropped.
This means entry-level cars could become more affordable, increasing sales and creating advantages for both buyers and car makers.
But it’s not just small cars. The government is also planning changes for SUVs and luxury cars. Currently, they attract 28% GST + up to 22% extra cess, which totals 50%. Reports suggest a new 40% tax slab could be implemented for luxury SUVs, which might still incur extra costs to maintain prices close to present levels.
Specialists note that the broader objective is to simplify GST, cut down redundant slabs, and make the system more balanced and flawless. The logic is that reduced tax rates encourage higher consumption, which in turn boosts total tax revenue. This Diwali, affordable small cars and reduced insurance costs could bring double happiness to Indian families.