India is weighing its first major consumption tax cuts in nearly a decade, with proposals to slash levies on small cars and motorcycles to 18% and ease duties on premium vehicles, according to Bloomberg.
People familiar with the matter said the Narendra Modi-led government is considering reducing goods and services tax (GST) on small cars to 18%, down from an effective rate of up to 31%. Motorcycles of up to 350cc would also fall into the same bracket. Premium cars, currently taxed at rates as high as 50%, may see levies pared back to around 40%, while premium motorcycles would continue to face some form of luxury tax.
Electric vehicles would remain taxed at just 5%, reinforcing government support for EV adoption.
The sweeping changes, if approved, would provide a significant boost to the world’s third-largest automobile market, where rising prices have dampened demand in recent years. “In the last five years, the prices of entry-level motorcycles have risen nearly 40%, similar to the pressure seen in small cars,” said Rakesh Sharma, executive director of Bajaj Auto. He added that the proposed tax relief could unlock demand “particularly at the bottom of the pyramid.”
According to Bloomberg News, the proposals have been sent to a panel of state finance ministers, which is expected to review them before the GST Council meets in September or early October. India’s finance ministry has not commented publicly on the plan.
The reforms come as Prime Minister Modi pushes for stronger domestic consumption in the face of external pressures, including US President Donald Trump’s threats to impose 50% tariffs on Indian exports later this month. Modi has urged Indians to buy more locally made products as part of a wider economic strategy.
Market reaction was immediate. Shares of Maruti Suzuki India Ltd., the country’s top carmaker, surged 8.8% in Mumbai trading Monday — their sharpest gain since April 2020. Hyundai Motor India Ltd. climbed 8.2%, while two-wheeler manufacturers also rallied: TVS Motor Co. jumped 6.6%, its biggest advance in nearly four years, and Bajaj Auto rose 4.6%.
Analysts said the tax cuts could set the stage for a surge in sales. Passenger vehicle volumes may grow at double-digit rates, with total sales topping 5 million units annually by March 2027, according to Jay Kale of Elara Securities India Pvt.
