The Goods and Services Tax (GST) Council has announced a new simplified two-rate structure of 5% and 18%, starting from September 22, 2025. According to Crisil Ratings, this move is expected to boost demand for two-wheelers by 200 basis points and passenger vehicles by 100 basis points.
Price Drop Across Segments
The new rates will bring down vehicle prices significantly. Small passenger cars will become cheaper by Rs 30,000–60,000, while two-wheelers will see a price cut of Rs 3,000–7,000. This means a 5-10% price drop across popular categories.
The biggest gainers will be two-wheelers up to 350cc, which make up almost 90% of the market. Small cars, commercial vehicles, and three-wheelers will also see their tax rates fall from 28% to 18%. Even tractors will benefit, as their GST rate will now be 5% or 18% instead of 12% and 28%.
However, premium motorcycles above 350cc will get costlier. Their GST rate will rise to 40% from the current 31%, making entry-level big bikes at least Rs 20,000 more expensive.
Boost After Slow Start
The auto sector struggled in the first quarter of fiscal 2026. Two-wheeler sales, especially budget commuter bikes, were hit by new regulations and weak rural demand during heavy monsoons. Passenger vehicles also slowed due to rising costs and customers delaying purchases in anticipation of tax cuts.
Industry experts believe the GST reduction will change the mood. With the festive season and Navratri around the corner, lower prices, new launches, and softer interest rates are likely to give sales a strong push in the second half of the year.
Wider Industry Benefits
Apart from reviving demand, the simplified tax structure will make compliance easier and reduce transport costs. This will improve profitability for automakers and support dealer cash flows by easing inventory pressure.
Overall, two-wheelers are now expected to grow 5-6% this fiscal, while passenger vehicles should see a 2-3% rise. With 90% of India’s auto industry volume covered under the lower GST slab, the sector looks set for a timely revival.
