Big SUVs and Sedans Set for Price Cuts with GST Reduction

The Indian automotive market is buzzing with exciting news for car buyers. A proposed reduction in Goods and Services Tax (GST) rates could soon make big SUVs and sedans more affordable. Currently taxed at a hefty 50%, these vehicles may see their GST slashed to 40%, potentially bringing down prices and making premium models more accessible. With the festive season approaching, this move could spark a surge in showroom visits. Let’s dive into what this means for buyers and the auto industry.

Why the GST Cut Matters

Big SUVs and sedans, such as the Toyota Fortuner, Mahindra XUV700, and Hyundai Verna, currently face a steep tax rate of 28% GST plus a 22% cess, totaling 50%. This high taxation significantly inflates their on-road prices, often making them a stretch for middle-class buyers. The proposed shift to a 40% GST slab, as discussed in a recent ministerial panel meeting, aims to simplify the tax structure and reduce costs for consumers.

This change comes as part of a broader GST overhaul announced by Prime Minister Narendra Modi, aiming to streamline India’s tax system into a two-tier structure of 5% and 18%, with a special 40% slab for luxury goods like large vehicles. The final decision is expected at the GST Council meeting next month, led by Union Finance Minister Nirmala Sitharaman. If approved, the timing could align perfectly with Diwali, a peak season for car purchases in India.

Potential Price Drops and Market Impact

The reduction from 50% to 40% GST could lead to significant savings for buyers. For example, a mid-size SUV like the Mahindra XUV700, priced around ₹20 lakh (ex-showroom), could see a price cut of up to ₹2 lakh, depending on how much of the tax benefit manufacturers pass on. This could make premium models more competitive with electric vehicles (EVs), which currently enjoy a low 5% GST rate but come with higher upfront costs.

The SUV segment has been a bright spot in India’s auto market, outpacing small car sales in recent years with a 10% year-on-year growth in FY25, reaching over 2.35 million units. Lower taxes could further fuel this demand, especially for models like the Hyundai Creta or Tata Safari. Meanwhile, sedans, which have seen declining sales (e.g., Hyundai Verna dropped 36% year-on-year in April 2025), could get a much-needed boost.

However, there’s a catch. Some states have proposed an additional cess on top of the 40% GST for luxury vehicles, which could offset some of the savings. The government is keen on a flat 40% rate without extra levies, but the final structure remains under discussion. Additionally, there’s concern about whether automakers will fully pass on these savings to consumers, as the anti-profiteering clause doesn’t apply here.

What It Means for Buyers and the Industry

For buyers, this GST cut could be a game-changer, especially for those eyeing larger vehicles. The reduced tax burden might make it easier to upgrade to a feature-packed SUV or a sleek sedan without breaking the bank. With Diwali around the corner, automakers may also roll out festive discounts to capitalize on the lower GST rates, creating a perfect storm for boosting sales.

For the auto industry, this move could revive demand in a market that’s seen sluggish sales in certain segments. Companies like Maruti Suzuki, Hyundai, and Mahindra, which have strong SUV portfolios, stand to benefit significantly. However, the narrowing price gap with EVs could pose a challenge for electric vehicle adoption, as ICE (internal combustion engine) vehicles become more price-competitive.

The proposed GST reforms also aim to simplify vehicle classification, reducing disputes over engine size and vehicle length. This could streamline pricing and make the buying process more transparent for consumers. For instance, models like the Tata Punch and Hyundai Exter, which straddle the line between compact and mid-size SUVs, could also see benefits if classified under lower tax slabs.