The Indian government is about to make big changes to its Goods and Services Tax (GST) system. One of the main changes would affect the automobile and two-wheeler industries. The new plan, which might be the biggest decrease to the consumption tax in almost ten years, is likely to lower the tax rate on small automobiles from an effective rate of up to 31% to a far more reasonable 18%.
Motorcycles with engines up to 350cc would also fall into the 18% GST rate, which is a big cut from the existing 28% tax. But premium motorbikes and luxury automobiles are still likely to have to pay a higher tax rate, maybe around 40% or perhaps a separate luxury tax. Electric vehicles (EVs) will stay in the same low 5% tax band.
Prime Minister Narendra Modi initially hinted at the anticipated changes in his Independence Day speech on August 15. The reforms are meant to boost consumption and ease any economic problems that might come up because of trade tensions across the world. A group of state finance ministers has received the ideas, and they should be delivered to the GST Council in late September or early October.
Effect on the Market and Prices of Stocks
The Indian stock market is already buzzing with enthusiasm at this news. The share prices of big companies in the compact vehicle and two-wheeler markets went up. Maruti Suzuki India Ltd. went up 8.8%, which is the most it has gone up since April 2020. Hyundai Motor India Ltd. also experienced a significant surge of 8.2%. TVS Motor Co. and Bajaj Auto Ltd., two big companies that make two-wheelers, also saw their stocks go up by 6.6% and 4.6%, respectively.
Jay Kale, an analyst at Elara Securities India Pvt., says that these tax cuts might lead to a double-digit growth rate for passenger vehicles in India. By the end of the fiscal year in March 2027, sales could reach more than 5 million units.
Rakesh Sharma, the Executive Director of Bajaj Auto, said that this step was urgently needed. “Prices for entry-level motorcycles have gone up almost 40% in the last five years, making them too expensive for many buyers,” he said. He thinks that these tax cuts will “unlock domestic consumption, especially at the bottom of the pyramid.”
The government wants to promote the automotive industry and the economy as a whole by making cars more cheap. They also want to boost consumer confidence across the country.