India proposes reduced GST rates for compact automobiles, a move aligned with Modi's economic reforms, boosting the stock market.
In a move aimed at making cars more affordable and boosting the insurance sector, the Indian government is planning to reduce the Goods and Services Tax (GST) on small petrol and diesel cars from the current 28% to 18%[1][2][3]. This change is part of the broader GST reform, or "GST 2.0", which aims to simplify tax rates and have only two main slabs: 5% for essentials and 18% for most goods, with a new 40% slab for luxury and sin goods[5].
Under the proposed changes, cars under 4 meters in length with engine capacities up to 1.2 liters for petrol and 1.5 liters for diesel will see a significant tax reduction[2][4]. The expected price drop for such small cars is estimated at about 5-10%, potentially translating into savings of around Rs 40,000-60,000 for popular models like the Maruti Swift[2][4].
The new GST structure, which will have only two rates of taxation - 5% and 18%, is expected to take effect around Diwali 2025 (October-November), after approval from the GST Council and formal notification by the government[2][3][4][5]. The government is pushing for the implementation before Diwali to boost economic growth and festive season sales.
The planned GST reform also includes a potential lowering of GST on health and life insurance premiums, which currently sit at 18%, to 5% or even zero[1]. This move is expected to help boost sales of insurance products, as India's insurance penetration remains low, at 3.8% of GDP in 2024, according to Swiss Re Institute.
The new proposal will also impose a 40% tax on 5-7 "sin-goods" like tobacco products and luxury items[5]. The government is considering imposing extra levies over the 40% to keep the overall tax incidence for big cars the same at 43%-50%[6].
The announcement has sparked optimism in the automobile industry, with companies like Maruti Suzuki, Hyundai Motor India Ltd., and Tata Motors Ltd. expected to benefit from the potential GST cut on small cars[7]. The sales of small cars in India have decreased over the last few years, with their market share dropping from nearly 50% before the pandemic to a third in the last fiscal year[8].
The Indian stock markets climbed on Monday, with the benchmark Nifty 50 trading 1.3% higher, reflecting the positive sentiment surrounding the proposed GST changes[9]. A meeting of the GST Council is expected by October[10].
[1] The Economic Times
[2] BloombergQuint
[3] The Hindu BusinessLine
[4] Autocar India
[5] The Financial Express
[6] The Hindu BusinessLine
[7] The Economic Times
[8] The Hindu BusinessLine
[9] The Economic Times
[10] The Financial Express
- The Indian government plans to reduce the Goods and Services Tax (GST) on small petrol and diesel cars, which could lead to a price drop of 5-10% for vehicles like the Maruti Swift.
- The governments proposed GST reform aims to simplify tax rates, having two main slabs: 5% for essentials and 18% for most goods, with a new 40% slab for luxury and sin goods.
- The automobile industry, including companies like Maruti Suzuki, Hyundai Motor India Ltd., and Tata Motors Ltd., has shown optimism based on the potential GST cut on small cars.
- The new GST structure, expected to take effect around Diwali 2025, will have only two rates of taxation - 5% and 18%.
- As part of the GST reform, there may be a potential lowering of GST on health and life insurance premiums to boost sales in those sectors.
- The stock market has climbed in response to the proposed GST changes, with the Nifty 50 trading 1.3% higher.
- The government is planning to impose a 40% tax on certain luxury and sin goods, but is considering imposing extra levies to maintain the overall tax incidence for big cars.
