The Indian automotive landscape is on the brink of a price shake-up, as premium SUVs and sedans are set to become significantly more affordable following a proposed revision in GST rates. Currently, big SUVs and luxury sedans are taxed at a whopping 50 percent—the highest GST bracket for automobiles in the country. However, after recent ministerial panel discussions, a reduction to 40 percent GST is on the table, potentially ushering in a new wave of lower prices for high-end vehicles.
GST Revision: What’s Changing?
Presently, large cars and SUVs fall under a dual tax structure: a 28 percent GST combined with a 22 percent cess, totaling 50 percent. This tax regime has kept prices of premium models steep, often putting them out of reach for many buyers. The proposed update would eliminate the cess and establish a flat 40 percent GST rate for these vehicles, a move being considered by the GST Council, which is chaired by Finance Minister Nirmala Sitharaman.
Some states have called for the continuation of a compensatory cess. However, government sources indicate a strong push to remove the cess entirely, as it was initially implemented for only five years to offset states’ revenue losses during GST roll-out. The cess was extended due to COVID-19, but the central government is now keen to wind it down, as those extraordinary circumstances have eased.
Impact on Pricing: What Buyers Need to Know
The drop from 50 percent to 40 percent taxation has the potential to substantially decrease the ex-showroom prices of luxury SUVs and sedans. In absolute terms, the reduction will deliver bigger savings for buyers of large vehicles than recent GST slab drops for small hatchbacks, which are expected to become cheaper by 12–13 percent as their GST moves from 29 percent to just 18 percent.
This price cut isn’t limited to a few models—it will apply across all internal combustion engine (ICE) vehicles powered by petrol, diesel, or hybrids. The revisions will help bring the cost of premium ICE-powered vehicles closer to that of EVs, which are already taxed at just 5 percent GST. Although electric vehicles often have a higher upfront price, the narrowing price gap will give buyers more choices and incentives to consider their best fit.
Will Consumers Actually Benefit?
One major concern in tax cut situations is whether manufacturers will genuinely pass the savings directly to buyers. The government’s “anti-profiteering” rules don’t apply in this context, so it will be up to OEMs to reflect the revised GST in their vehicle prices. According to sources, carmakers have strong motivation this time to lower prices, especially with the high-demand festive season approaching. For many automakers, this change represents a major opportunity to boost sales, drive higher showroom traffic, and attract more first-time buyers to the SUV and sedan segments.
What Does This Mean for the Market?
The big SUV segment has been outpacing hatchback and small car sales in recent years, driven by consumer preference for space, comfort, and elevated driving position. With the new GST rate likely to make these vehicles even more accessible, an even greater uptick in SUV and sedan sales is expected—potentially changing the competitive landscape and market leaderboards.
At the same time, the reduction in GST for small cars aims to revive demand in the entry-level segment, ensuring broader affordability gains across the board.
Conclusion
If the GST Council moves forward with a flat 40 percent tax rate and eliminates the cess, buyers across India could soon see significant price reductions on premium SUVs and sedans. For carmakers, it’s likely to translate into higher volumes, particularly in the all-important festive season. Ultimately, this shift could bring a broader range of vehicles within reach for Indian consumers—making the dream of owning a big SUV or luxury sedan a little easier to achieve.
