GST Rate Cuts to Rev Up Auto Sector, Boost Jobs, and Ease Burden on Consumers

From bikes and small cars to tractors and buses, new GST structure promises affordability, cleaner mobility, and a big push for Make in India

New Delhi, September 9 – In what is being hailed as a landmark tax reform, the Government of India has announced sweeping changes to the Goods and Services Tax (GST) that will significantly benefit heavy industries, especially the automobile and transport sector. The GST Council, in its 56th meeting, unveiled a simplified structure with just two main slabs—5% and 18%—and a 40% rate for luxury and sin goods, replacing the earlier four-tier system.

These changes, effective from September 22, 2025, are designed not only to ease the burden on citizens but also to stimulate demand, encourage fresh investments, and boost employment across multiple industries.

Relief for auto buyers and manufacturers

The biggest beneficiaries of this reform are two-wheelers, small cars, tractors, and buses. GST on bikes up to 350cc has been slashed from 28% to 18%, making them more affordable for rural households, farmers, gig workers, and youth across India. Similarly, small cars—a staple for middle-class families—will now attract just 18% GST, bringing down ownership costs and expanding access to mobility in tier-2 and tier-3 cities.

Even in the luxury segment, simplification has been the key. Large cars will now be taxed at a flat 40% without any cess, making the pricing structure predictable and slightly easing the cost for aspirational buyers.

Tractors and buses to power rural economy

In a move widely welcomed by the agricultural sector, tractors will now attract only 5% GST, down from the previous 12%. Tractor tyres and parts have also been brought under the 5% slab, which the Ministry of Heavy Industries believes will strengthen India’s role as a global tractor manufacturing hub.

For buses with more than 10 seats, the GST rate has been cut from 28% to 18%, offering relief to corporates, schools, tour operators, and state transport undertakings.

Multiplier effect on jobs and MSMEs

The Ministry of Heavy Industries noted that the auto industry supports over 3.5 crore jobs directly and indirectly. Lower taxes will push vehicle sales, leading to higher demand for tyres, batteries, steel, electronics, plastics, and glass—sectors dominated by MSMEs. This, in turn, will create new employment opportunities in dealerships, logistics, transport services, and repair workshops. Informal workers, including drivers and mechanics, are also expected to benefit.

Financial institutions are set to gain as well, with more demand for auto loans boosting NBFCs, banks, and fintech lenders, particularly in semi-urban India.

Cleaner, greener mobility

The reforms are also aligned with India’s climate goals. Lower taxes are expected to accelerate the replacement of old, fuel-inefficient vehicles with new, cleaner models, reducing emissions and supporting the government’s push for sustainable mobility.

A historic shift in GST policy

Describing the changes as “next-generation GST rationalisation,” the government said the move reflects a balance between easing the burden on citizens and promoting long-term economic growth. The announcement comes shortly after Prime Minister Narendra Modi signaled the intent for GST reforms in his Independence Day speech.

By reducing complexity, encouraging affordability, and driving economic activity, the new GST structure marks a pivotal moment in India’s tax history—one that promises to reshape the automobile industry, create jobs, and stimulate growth across sectors.