The government is weighing a significant reduction in the Goods and Services Tax (GST) on small cars, with rates likely to be cut to 18% from the current
28%, according to a Reuters report. The proposal is part of a broader package of tax reforms unveiled by Prime Minister Narendra Modi to spur consumer demand. Also Read: Top-Selling SUVs In July 2025: Hyundai Creta, Maruti Suzuki Brezza Lead The Charts The move could provide a major lift to India’s largest carmaker, Maruti Suzuki, whose dominance in the market has been challenged by the growing popularity of sport utility vehicles. Once controlling over half of the market, Maruti’s share has slipped to around 40% as sales of compact models such as the Alto, Wagon-R and Dzire weakened. Small cars, defined as petrol vehicles with engines under 1,200cc or diesels below 1,500cc, and not exceeding 4 metres in length, accounted for roughly one-third of the 4.3 million passenger vehicles sold in India last fiscal year. That figure has declined from nearly 50% in the years before the pandemic as consumers opted for larger, more premium offerings. The report states that the proposed tax cut, which could be announced around Diwali, may help revive demand in this entry-level segment. Hyundai Motor India and Tata Motors, which also have sizeable small-car portfolios, are expected to benefit as well. Also Read: 8 Made-In-India Cars And Bikes Every Indian Should Be Proud Of At the same time, the government is reviewing tax slabs for larger vehicles. Currently subject to 28% GST plus a compensation cess of up to 22%, taking the effective burden to nearly 50%, these vehicles may instead be taxed at a new flat rate of 40%. Policymakers are still debating whether to add further levies to keep the overall incidence within the 43–50% range. (Source: Reuters)
