HSBC Report: The GST Cut Could Lower the Price of Small Cars in India by 8%

If the GST rate goes down from 28% to 18%, tiny cars could get a lot cheaper. Bigger cars might also get cheaper, but not as much. But the move could lose the government billions of dollars in tax income.

New Delhi, India, August 19: It might soon be cheaper to buy a tiny automobile in India. A recent report from HSBC says that the Indian government is thinking about a big tax cut that may lower the Goods and Services Tax (GST) on compact automobiles from 28% to 18%. This adjustment might lower the pricing of compact cars by over 8%, which would be a big help for middle-class customers.

Passenger vehicles (PVs) are taxed at a rate of 29% to 50% GST right now. This is because there is an extra cess on top of the normal 28% GST rate, which varies based on the size and length of the vehicle. With the proposed modifications, smaller cars would pay the lower 18% tax rate, while larger cars would pay a fixed rate of 40%, and the cess would be fully removed.

This restructure would mean:

Prices for small cars might drop by as much as 8%.

Prices for bigger cars could go down by 3–5%.

The study also said that this decision would be very good for the two-wheeler industry, especially for indigenous producers. But there’s another side to this. The government might lose about $4–5 billion in revenue since it won’t be able to collect as much GST.

HSBC also talked on another option, albeit it is less likely, that all automobile types will have a flat GST drop to 18%. In this case, the tax based on the size of the vehicle would stay the same, and the prices of all cars may go down by 6% to 8%. But this would cost the government considerably more money, between $5 and $6 billion.

This measure might change the game for the auto sector if the government goes through with it. It could increase demand, help Indian manufacturers, and make cars more accessible for Indian families.