In a move aimed at boosting demand in the automobile sector, the government has restructured Goods and Services Tax (GST) rates for vehicles and auto parts. The Compensation Cess has been removed, making vehicles more affordable in several categories.
As part of the overhaul, the 12% and 28% GST slabs have been scrapped, while the 5% and 18% slabs remain in place. In addition, a new 40% slab has been introduced for luxury and sin goods.
GST Rate Structure
18% Slab
– Petrol, hybrid, liquefied natural gas (LNG) and compressed natural gas (CNG) cars
(Petrol: up to 1,200cc engine and under 4 meters length; Diesel: up to 1,500cc engine and under 4 meters length)
– Motorcycles with engine capacity up to 350cc
– Commercial vehicles for goods transport
– Three-wheelers
– Tractors (engine capacity above 1,800cc)
– Ambulances and buses
– Auto parts (other than tractors)
– Tyres
5% Slab
– Electric vehicles (EVs)
– Tractors up to 1,800cc engine capacity
– Tractor parts
– Tractor tyres and tubes
– Bicycles and other cycles
– Tanks and other armoured fighting vehicles
40% Slab
– High-end cars
– Petrol cars with engine capacity above 1,200cc, diesel cars above 1,500cc, or length exceeding 4 meters
– Motorcycles above 350cc
– Station wagons
– Racing cars
Here are the beneficiaries
– Small cars: Maruti Suzuki, Tata Motors, Hyundai
– Two-wheelers (up to 350cc): Hero MotoCorp, Bajaj Auto, TVS, Eicher
– Tractors: Mahindra & Mahindra, Escorts Kubota
– Three-wheelers: Bajaj Auto, TVS
– Armoured vehicles: Tata Motors, Bharat Forge
– Buses: Tata Motors, Ashok Leyland
– Tyres: Apollo Tyres, MRF, Ceat, Balkrishna Industries
– Auto parts: Endurance, Belrise, Sona BLW, Motherson, Carraro
Broad-based benefit for industry players: CLSA
According to global brokerage firm CLSA, GST plus cess has declined across all automobile categories, creating a broad-based benefit for industry players.
Entry-level cars (less than four meters in length, petrol up to 1,200cc and diesel up to 1,500cc) will see a reduction from 29% (28% GST plus 1% cess) to 18%.
Two-wheelers (engine capacity below 350cc) will fall from 28% to 18%.
Commercial vehicles will decline from 28% to 18%.
Mid-to-high-end SUVs (longer than four meters) will come down from 50% (28% GST plus 22% cess) to 40%.
Tractors will see no effective price change, as input tax credit adjustments will offset the cut.
Motorcycles above 350cc will be the only category to face higher taxes, rising from 31% (28% GST plus 3% cess) to 40%.
CLSA believes this reduction in GST rates will boost overall demand and turn sentiment positive for the automobile sector.
Stock impact
– Passenger Vehicles (PVs): Maruti Suzuki is expected to be the biggest beneficiary, followed by Hyundai Motor India and Mahindra & Mahindra. Tata Motors’ gains may be relatively muted, given Jaguar Land Rover (JLR) and Tata Technologies account for 41% of its sum-of-the-parts valuation.
– Two-Wheelers (2Ws): Hero MotoCorp, Bajaj Auto and TVS Motor are seen benefiting equally. Royal Enfield should also gain, as around 91% of its FY25 volumes come from motorcycles with engine capacity below 350cc.
– Commercial Vehicles (CVs): Ashok Leyland and Tata Motors are expected to see a positive impact.
