GST Cut 2025: The Indian government’s proposal to slash GST on small cars from 28% to 18% by Diwali 2025 has stirred excitement in the auto industry. For years, India’s once-thriving small car segment—dominated by entry-level hatchbacks—has been losing ground to SUVs. Sales of compact cars dropped nearly 15% in FY2025, touching just about one million units, while SUVs raced ahead with more than 2.04 million units sold.
Before and After: Hatchback Prices
Here’s how two of India’s most popular entry-level hatchbacks—Maruti Wagon R and Tata Tiago—could become cheaper if GST is cut.
| Model | Current On-Road Price (Approx.) | Potential New On-Road Price (With 18% GST) |
|---|---|---|
| Maruti Wagon R LXI | ₹6.30 lakh | ₹5.72 lakh |
| Tata Tiago XE | ₹5.56 lakh | ₹5.04 lakh |
How a GST Cut Will Impact Car Prices
The proposed tax reduction could bring down ex-showroom prices by 10–12%, translating to direct savings for buyers. Even a modest drop of ₹20,000–₹50,000 could make small cars more attractive, especially for first-time buyers and middle-class families.
VG Ramakrishnan, Managing Partner at Avanteum Advisors, explained that such a cut would have a “huge positive impact on consumer sentiment,” even if the absolute benefit is limited.
Also Read: TVS Bikes & Scooters Get Cheaper After GST 2.0 – Check New Prices Here
Car Loans Get Lighter Too
The benefits extend beyond just sticker prices. Since car loans are calculated on the principal vehicle cost, a lower price means: Smaller loan amounts, Reduced EMIs, More financial comfort for middle-class families, Dealers believe this will encourage many two-wheeler owners in Tier-2 and Tier-3 cities to upgrade to a four-wheeler.
Festive Season Effect: A Double-Edged Sword
While the proposal is positive long term, its timing before Diwali could create short-term disruptions. Buyers may postpone purchases in anticipation of lower prices, leading to slower festive-season sales. Dealers fear excess inventory, while automakers risk production adjustments.
Also Read: Biggest Festive Car Discounts 2025: Save Up to ₹5 Lakh on SUVs, Sedans & EVs
Impact on EV Adoption
Currently, electric vehicles (EVs) enjoy just 5% GST, compared to 28–50% on petrol and diesel cars. A cut to 18% on ICE (internal combustion engine) cars would narrow the gap, possibly slowing EV adoption. This could affect not only carmakers but also charging infrastructure providers and battery manufacturers, who are betting big on India’s EV future.
Domestic Sales vs Export Headwinds
With global trade challenges and new U.S. tariffs on Indian auto parts, boosting domestic consumption is vital. While the government risks losing up to ₹1.1 lakh crore in annual tax revenue, policymakers believe higher car sales volumes will help offset this.
Will GST Cut 2025 Revive the Small Car Market?
The answer depends on execution. If rolled out smoothly, the lower prices and EMIs could indeed reignite demand in India’s budget car segment. But delays or uncertainty may lead to short-term pain for both automakers and buyers.
Also Read: Bajaj Pulsar Hattrick Offer: Full GST Savings + Insurance & Zero Loan Fees
What’s certain is that this tax reform could mark a turning point for India’s auto industry, reshaping the balance between small cars, SUVs, and EVs. A GST cut could put entry-level hatchbacks like the Wagon R and Tiago back in the spotlight, offering affordable mobility at a time when rising SUV dominance has overshadowed small cars