GST 2.0 and reduced customs duties have revolutionized India’s automobile industry! The reduction in GST rates on small cars and bikes from 28% to 18% has led to a significant price increase, resulting in savings of up to ₹1 lakh on some models. Learn how GST 2.0 has simplified the tax structure, why electric vehicles (EVs) have become cheaper, and how the India-Japan FTA is strengthening the manufacturing sector.
Biggest Boom in the Automobile Sector
According to a recent report, GST 2.0 reforms, reduced customs duties, and the India-Japan Free Trade Agreement have together shaped the course of the country’s automobile industry. The report, released by Grant Thornton India and the Indo-Japan Chamber of Commerce and Industry (IJCCI), states that GST 2.0, implemented in September, has been completely transformative for India’s automobile sector.
This move has simplified the tax structure unprecedentedly and reduced product prices. Furthermore, it has significantly boosted vehicle demand across all segments. Under the new GST rates, small cars and motorcycles with a capacity of less than 350 cc now attract an 18 percent GST, significantly lower than the previous 28 percent tax and cess rate.
Cost Reduction and Consumer Interest Surge
The reduction in GST rates has had a direct impact on consumers’ pockets. As a result of this change, prices of select models have seen a significant reduction of up to ₹1 lakh. On the other hand, premium vehicles, including SUVs and high-end motorcycles, now attract a 40 percent GST, while the tax rate on electric vehicles (EVs) has been reduced to just 5 percent.
The report states that consumer interest in vehicles has increased significantly since the reduction in GST rates, leading to a massive 50 percent increase in booking volumes in the small car segment.
The Indian automobile industry contributes 7.1 percent to GDP, and its share in manufacturing GDP is over 50 percent. The country’s automobile industry is projected to produce 28 million vehicles in 2024, an 8 percent increase from 2023.
Strengthening India as a Manufacturing Hub
Grant Thornton India said, “The combination of GST 2.0 and targeted customs duty incentives is a defining moment for India’s automotive sector. Lower tax rates, simplified compliance, and supply-chain-focused exemptions will not only enhance India’s cost competitiveness but also strengthen its position as a manufacturing and export hub for Japanese automakers.”
The report states that these reforms will increase investment in the country, drive greater adoption of electric vehicles (EVs), and further strengthen India-Japan partnerships in the areas of mobility and advanced manufacturing. These reforms will mark a new chapter in the development of the automobile industry.