A double-digit cut in taxes on small cars and a cleaner slab for bigger vehicles has triggered across-the-board price drops from major automakers. The 56th GST Council meeting on September 3, 2025, approved a new auto tax structure under GST 2.0, effective September 22. In a rare move, companies aren’t waiting for the start date—several have already repriced cars and opened bookings at the lower tags.
Here’s the new structure in plain terms:
Cut the jargon—what does this mean for prices? For mass-market small cars, the drop is big: from 28–29% total tax to 18%. For bigger cars and SUVs, the effective levy falls from about 50% to 40%. EVs don’t get a new tax break, but they’ll benefit indirectly if rivals’ prices move closer.
A quick example helps. If a compact petrol hatchback had an ex-factory price of ₹6 lakh, the old 29% tax implied an ex-showroom of roughly ₹7.74 lakh. At 18%, it’s about ₹7.08 lakh—a cut near ₹66,000 before on-road charges. For a large SUV with a ₹10 lakh ex-factory price, moving from 50% to 40% takes the ex-showroom from ₹15 lakh to ₹14 lakh—a clean ₹1 lakh drop.
Also worth noting: while ex-showroom prices fall, state road tax and registration—usually calculated on ex-showroom—will drop in rupee terms as well. Insurance premiums, which are tied to IDV and ex-showroom, should ease too. The catch? Discounts. Some brands may trim dealer-level offers since headline prices are lower. The companies announcing cuts say they’re passing through the tax benefit in full, but the final on-road saving will still depend on model, stock situation, and city-level charges.
There’s another structural shift here: the end of the compensation cess simplifies classification. Earlier, one vehicle could carry multiple levies depending on length, engine capacity, body style, and fuel type. The 40% flat rate for big cars/SUVs removes a layer of confusion, while the 18% rate squarely boosts sub-4-metre cars and diesels under 1500cc—segments that drive volumes in India’s price-sensitive market.
Two-wheelers up to 350cc also slide to 18%. Expect commuter bike makers to announce their own moves soon. That could ripple into the used two-wheeler market, nudging prices down as new bikes become more affordable.
Automakers moved fast. Three big names—Mahindra & Mahindra, Tata Motors, and Renault—have declared a reset across popular models. Several others, from Toyota and Hyundai to luxury marques, have signalled similar cuts ahead of the festive season.
Mahindra & Mahindra was among the first to flip the switch, effective September 6:
Mahindra says more than 60% of its total volumes—including commercial vehicles—benefit from the 18% slab. That’s logical: sub-4-metre, diesel-under-1500cc, and compact petrol models are the biggest winners in this rejig.
Tata Motors has rolled out sizable reductions across hatchbacks and SUVs:
These cuts line up with the tax math: small cars see a bigger percentage reduction, but larger SUVs—given their higher base price—deliver chunky absolute savings.
Renault, focused on the sub-4-metre value segment, has gone live with revised tags and is taking bookings immediately:
Others are aligning fast. Toyota, Hyundai, Škoda, Mercedes-Benz, BMW, Audi, Maruti Suzuki, and more have indicated they will pass on the benefit, model by model. Expect detailed price cards to surface as dealers reconcile old inventory with the new tax framework.
What should buyers do now?
How big is the saving on your EMI? As a thumb rule, a ₹1 lakh drop, financed over five years at around 9% interest, can cut the monthly EMI by roughly ₹2,000–₹2,100. On a compact hatchback with a ₹60,000 cut, you’re looking at around ₹1,200 per month lower. That’s real money, especially when fuel and insurance costs are rising.
Segment winners and what changes on the ground:
What about cars already in stock at dealerships? If a vehicle was billed to the dealer before September 22 at the old rate, manufacturers typically issue credit notes to align with the new structure so the benefit reaches the buyer. Expect a short administrative lag as systems update VIN-by-VIN prices. If you’re mid-process—booked but not invoiced—ask the dealer to reissue the proforma reflecting the new tax.
There are ripple effects beyond the showroom. Used-car prices usually shadow new-car tags with a short delay. Expect some pressure on residual values of 1–3 year-old models, more so in the compact segment where the tax cut is steepest. On the flip side, lower new-car prices can bring more first-time buyers into the market, increasing trade-ins and replenishing used-car supply.
Financing will adjust too. Banks and NBFCs set loan amounts as a share of ex-showroom or on-road price. When the base price drops, the loan-to-value calculation changes slightly in your favor—sometimes enabling a smaller down payment for the same model. Lenders may also refresh rate and cashback offers to ride the festive demand wave.
Could the cuts meet supply constraints? It depends on the model. High-demand SUVs and new launches could see waiting periods widen, while established hatchbacks and compact sedans might be available faster as factories ramp up. Automakers have streamlined chip supply compared to the pandemic years, but variant-specific semiconductor parts can still bottleneck production.
There’s one more practical detail: features and variant mix. When a structural cut hits, brands sometimes rework line-ups—adding a safety feature as standard or consolidating trims. Watch spec sheets closely if you’re comparing a pre-cut model to the new batch; a like-for-like comparison is the only fair one.
For policy watchers, the big takeaway is simplicity. A flatter 40% slab for larger cars and a broad 18% band for small cars and small diesels put an end to a maze of cess-linked permutations. It also hands the industry clearer pricing levers, which should reduce disputes over classification and save time in compliance.
For buyers, the timing couldn’t be better. Festive season footfalls are about to spike, dealers are eager to convert inquiries, and there’s fresh clarity on the tax side. If you were waiting for a signal, this is it: prices have moved in your favor, and the market is adjusting fast. Book smart, read the fine print, and make the lower tax work for you.