Autobayng News Team
Small cars include petrol engine cars below 1200cc and under 4 metres in length, and diesel cars below 1500cc and under 4 metres.“>
The government’s sweeping rationalisation of Goods and Services Tax (GST) rates for the automobile and road transport sector is set to make vehicles more affordable, strengthen manufacturing competitiveness, and generate large-scale employment, the Ministry of Road Transport and Highways said on Friday. The reforms, approved by the GST Council in its 56th meeting, reduce the four-rate structure (5, 12, 18 and 28 per cent) to two main slabs — 5 per cent (merit rate) and 18 per cent (standard rate) — along with a special 40 per cent rate for luxury and sin goods. The changes will take effect from September 22, the first day of Navratri.
Lower tax burden across vehicle categories
Among the major changes, the GST on two-wheelers up to 350cc, small cars, buses, and most auto components has been cut to 18 per cent from 28 per cent. Small cars include petrol engine cars below 1200cc and under 4 metres in length, and diesel cars below 1500cc and under 4 metres. For tractors, the GST rate has been slashed from 12 per cent to 5 per cent, with tractor tyres and parts also brought under the 5 per cent slab. GST on buses with seating capacity of more than 10 persons has been reduced to 18 per cent from 28 per cent. Large cars remain in the 40 per cent category without cess.
According to the ministry, the rationalisation will not only reduce vehicle prices but also support MSMEs in the auto component supply chain, enhance logistics efficiency, and incentivise replacement of old, polluting vehicles with fuel-efficient models.
Impact on jobs and growth
As per ANI, the ministry said the reforms are expected to support over 3.5 crore jobs across the auto and allied sectors, particularly benefiting MSMEs involved in tyres, batteries, steel, plastics, glass, and electronics. The move is also likely to open up more opportunities for drivers, mechanics, gig workers, and service providers. “It will strengthen MSMEs in the auto-component supply chain, create employment, and promote cleaner, more efficient mobility. By simplifying and stabilising the tax framework, the move boosts manufacturing competitiveness, supports farmers and transport operators, and reinforces national initiatives such as Make in India and PM Gati Shakti,” the ministry said in a statement. Union Road Transport and Highways Minister Nitin Gadkari, posting on X, called the GST cuts a “transformative step” for the economy. “These reforms mark a transformative step — bringing relief to farmers, MSMEs, small traders, women, youth, and the middle class, while ensuring ease of doing business across India. This is more than just a policy change; it’s a step towards empowering citizens and strengthening our economy,” he said. A next-generation GST
The ministry described the move as a landmark in the evolution of GST since its rollout in 2017. By lowering the tax burden on vehicles and auto components, the reforms are expected to drive demand in both urban and rural markets, expand credit-driven purchases through NBFCs and banks, and give a push to cleaner public transport options.
“This rationalisation represents a key milestone in India’s drive toward affordable, efficient, and sustainable mobility,” the ministry added.
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