Save Big This Diwali: How the GST Cut from 28% to 18% Will Make Small Cars More Affordable (Hopefully)

During his address on the 79th Independence Day of India, Prime Minister Narendra Modi spoke about the GST reforms and how they will benefit the middle class of the country substantially. As a follow-up, the central government is preparing a major GST reform, which could help a variety of industries, but the automobile industry in particular.

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Low GST Rates On Sub-4 Meter Cars

According to reports, the center is considering lowering the GST rate on small cars (less than four meters in length, with up to 1,200cc petrol engine, and 1,500cc diesel engine). Currently, the GST rate levied on such cars is 28%, but in a few months, it might go down to 18% (as part of a broader tax reform that aims to simplify the GST slabs).

The GST Council is expected to review and pass this proposal by October 2025, allowing manufacturers to implement the revised rates during the upcoming festive season, which, without a doubt, is the peak time for vehicle purchases in the country. If the rates are revised, this will be the largest GST reform in nearly a decade.

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Impact On Ex-Showroom Price

Let’s understand the impact on a car’s price through an example.

• Currently, the ex-showroom price of the Maruti Suzuki WagonR’s base LXI trim is Rs. 5.79 lakhs in Lucknow, Uttar Pradesh.
• This price is supposed to include the 28% GST component along with the 1% Cess (which makes up for a total of 29% tax on the pre-GST price).
• Doing the math, the pre-GST price of the vehicle should be around Rs. 4.48 lakh, with the GST component adding Rs. 1.30 lakh.
• However, when the GST rate goes down from 28% to 18%, the GST component will only add up to around Rs. 80,000 to the pre-GST price (while the 1% Cess, if that remains the same, will add another Rs. 5,000), potentially reducing the ex-showroom price of the vehicle to Rs. 5.33 lakhs.
• The ex-showroom price difference, according to our calculation, comes out to be around Rs. 45,000, which is a significant amount for anyone who is looking for a car at around Rs. 5 lakhs.

Further, a decrease in the ex-showroom price will also lower the road tax and the insurance premium that customers must pay. Keep in mind that we’ve assumed the Cess rate to be fixed at the current 1% rate (as increasing it will lead to a lesser impact along with decreased GST rates).

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The GST Reform Will Benefit Consumers And Manufacturers Simultaneously

The revised GST rate (18%) could lead to an overall price reduction of around 7.8% on the ex-showroom price, making the cars more affordable, and, in turn, reviving the demand in the entry-level segment, which has seen sluggish growth for the last few years.

The strategy looks simple: reduce the margin and increase the sales volume, a tactic that several low-ticket-price businesses use to boost their sales. If implemented without loopholes, the GST reform will also benefit the largest automakers in the country, including Maruti Suzuki, Tata Motors, and Hyundai (as a significant portion of their sales comes from small cars).

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Word of Advice For Car Shopping During Diwali 2025

When you’re out in the market, hopping from one showroom to another, keep in mind the GST reforms (whether they’ve come into place and are effective at your planned date of purchase), and then negotiate on the deals and discounts. Don’t let the salespeople or dealerships pass on the GST rate cut disguised as an upfront discount to you.

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