GST Rate Cut to Drive Two-Wheeler and Passenger Vehicle Sales, Says Crisil Report
New Delhi, Sep 5 (TTP): India’s automobile sector is set for a demand revival as the Goods and Services Tax (GST) Council’s decision to move to a simplified two-rate structure of 5% and 18% from September 22 is expected to give a timely boost to sales, particularly in the two-wheeler and passenger vehicle (PV) segments, according to a Crisil Ratings report released on Friday.
The report projects that two-wheelers and PVs, which together contribute 90% of the domestic automobile industry’s volume, will see demand increase by 200 basis points (bps) and 100 bps, respectively. This would translate to a 5–6% growth in two-wheeler sales and a 2–3% rise in PV volumes during the current fiscal year.
Price Reductions Expected to Spur Demand
“With the GST cut fully passed on, vehicle prices are expected to drop 5–10% (₹30,000–60,000 on small PVs; ₹3,000–7,000 on two-wheelers),” said Anuj Sethi, Senior Director, Crisil Ratings. The reduction is expected to make vehicles more affordable ahead of the upcoming festive season, coinciding with Navratri, a period when automobile sales traditionally peak.
The lower prices, coupled with new model launches, softer interest rates, and improved financing options, are likely to provide a much-needed boost to consumer sentiment and accelerate sales growth in the second half of the fiscal year.
Impact of GST Changes Across Vehicle Segments
Under the revised GST framework:
- Small PVs and two-wheelers up to 350cc (which account for nearly 90% of the segment’s sales) will see tax rates drop to 18% from the current 28%.
- Mid- and larger PVs will also benefit from a 3–7% tax cut.
- Tractors will be taxed at 5% and 18%, down from 12% and 28%.
- Commercial vehicles (CVs) and three-wheelers will see their GST rate reduced to 18%.
- Motorcycles above 350cc, however, will become costlier, with taxes rising to 40% from the existing 31% (including cess).
For CVs, the tax cut is expected to offset cost pressures stemming from the upcoming mandatory air-conditioned (AC) cabin requirement effective October 1, 2025.
Sector Outlook and Profitability
According to Poonam Upadhyay, Director, Crisil Ratings, the GST cut will not only revive demand but also enhance profitability for automakers. “Higher volume will improve capacity utilisation and operating leverage, translating to stronger cash flows and healthier margins for automakers, reinforcing their already stable credit profiles,” she said.
Beyond boosting demand, the simplified GST slabs are also expected to ease compliance and reduce logistics costs, creating long-term efficiency across the value chain.
Final Thoughts from TheTrendingPeople.com
The GST Council’s move is being seen as one of the most impactful policy steps for the auto sector in recent years. With festive tailwinds, new product launches, and reduced prices, the automobile industry could witness strong double-digit growth momentum in the months ahead. However, the increased tax on premium motorcycles may temporarily dampen demand in the high-end segment