Government of India Cuts GST on Automobiles, Tractors, and Buses to Boost Demand

The Government of India has taken a significant step to boost the economy by revising GST rates across various sectors under the Ministry of Heavy Industries. These changes, announced on September 4, 2025, aim to make vehicles and auto components more affordable, stimulate demand, and strengthen India’s manufacturing ecosystem. Let’s dive into the details of these GST revisions and their far-reaching impact.

GST Rate Cuts Across Key Sectors

Two-Wheelers (Bikes up to 350cc) GST rates for bikes up to 350cc have been slashed from 28% to 18%. This reduction will make bikes more affordable for youth, professionals, and lower-middle-class households. As bikes are the primary mode of transport in rural and semi-urban India, this move directly benefits farmers, small traders, and daily wage earners. Additionally, gig workers will see reduced costs and EMIs for two-wheeler loans, boosting their savings.
Small Cars GST on small cars has been reduced from 28% to 18%, making them more accessible to first-time buyers and households in smaller cities and towns. This will expand mobility, stimulate sales, and benefit car dealerships, service networks, drivers, and auto-finance companies. The affordable segment includes petrol cars (<1200cc, <4 meters) and diesel cars (<1500cc, <4 meters).
Large Cars GST on large cars has been simplified to a flat 40%, with the removal of additional cess. This makes taxation predictable and lowers the effective tax rate, making larger cars more affordable for aspirational buyers. The change also ensures full eligibility for Input Tax Credit (ITC), promoting investment in the sector.
Tractors GST on tractors (<1800cc) has been reduced from 12% to 5%, while road tractors for semi-trailers (>1800cc) now attract 18% GST (down from 28%). Tractor parts are taxed at just 5%. These changes will boost mechanization in agriculture, improve crop productivity, and strengthen India’s position as a global tractor manufacturing hub.
Buses (Seating capacity of 10+ persons) GST on buses has been reduced from 28% to 18%, lowering upfront costs for fleet operators, corporates, schools, and state transport undertakings. Affordable ticket fares will encourage a shift from private vehicles to public transport, reducing congestion and pollution. This move also supports fleet expansion and modernization.
Commercial Goods Vehicles (Trucks, Delivery Vans, etc.)  GST on trucks and delivery vans has been reduced from 28% to 18%, lowering freight rates and logistics costs. This will benefit MSME truck owners, reduce inflationary pressures, and improve export competitiveness. Additionally, GST on third-party insurance for goods carriage has been reduced from 12% to 5%, further supporting the sector.
Auto Components GST on auto components has been reduced to 18%, benefiting manufacturers of motor cars and bikes. Ancillary industries like tyres, batteries, and electronics will see increased demand, creating a multiplier effect on MSMEs in the supply chain.

Broader Impacts of GST Revisions

Boost to Employment The automobile industry supports over 3.5 crore jobs directly and indirectly. Lower GST rates will stimulate demand, leading to new hiring in dealerships, transport services, logistics, and MSMEs. Informal sector jobs like drivers, mechanics, and small service garages will also benefit.
Support for Financial Inclusion Vehicle purchases are largely credit-driven. A revival in auto sales will support retail loan growth, improve asset quality, and expand financial inclusion in semi-urban India.
Cleaner Mobility Lower GST rates will encourage the replacement of old vehicles with new, fuel-efficient models, supporting cleaner mobility and reducing pollution.
Alignment with National Policies The GST revisions align with PM Gati Shakti and the National Logistics Policy, promoting efficient transportation and logistics.

Conclusion

The revised GST rates are a transformative step for India’s automobile and heavy industries. By making vehicles and components more affordable, the government is not only boosting demand but also strengthening the manufacturing ecosystem, creating jobs, and supporting cleaner mobility. These changes will have a cascading effect across sectors, benefiting farmers, MSMEs, gig workers, and the informal economy. With policy certainty and rationalized taxation, India is poised to become a global leader in automobile manufacturing and logistics.

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Source: Ministry of Heavy Industries

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