The GST Council’s new, rationalized tax structure is set to have a wide-ranging positive impact on heavy industries, with significant rate cuts across the automobile and tractor sectors. These changes, which will be effective from September 22, 2025, are designed to boost consumer demand, simplify the tax structure, and promote the government’s “Make in India” initiative.
The new policy simplifies the tax structure from four slabs to two main rates—5% and 18%—along with a special 40% rate for certain goods. The heavy industries, particularly the automobile sector, are expected to be major beneficiaries.
Key Rate Cuts and Their Impact
- Automobiles: GST rates have been reduced across various categories, including two-wheelers, small cars, large cars, and commercial vehicles. This is expected to create a powerful multiplier effect on the vast ancillary industry, which includes MSMEs manufacturing tyres, batteries, and other components. With the industry supporting over 3.5 crore jobs, a demand boost will lead to new hiring in dealerships, logistics, and related services.
- Two-Wheelers (up to 350cc): The GST rate has been cut from 28% to 18%. This reduction will make bikes more accessible, directly benefiting youth, professionals, and gig workers who rely on two-wheelers for daily transport in rural and semi-urban areas.
- Small Cars: The GST on small cars will also be reduced from 28% to 18%. This will make vehicles in the affordable segment cheaper, stimulating sales in smaller cities and towns and encouraging first-time buyers.
- Large Cars: For large cars, the tax rate has been simplified to a flat 40%, with the removal of the additional cess. This change simplifies the tax structure and makes these vehicles more affordable for aspirational buyers, as the Input Tax Credit (ITC) can now be utilized on the full tax amount.
- Tractors and Parts: The GST on tractors with an engine capacity of less than 1800cc has been dramatically reduced from 12% to 5%. The tax on tractor parts has also been cut to 5%. This is expected to push demand in both domestic and export markets, benefiting MSMEs in the supply chain and strengthening India’s position as a global tractor manufacturing hub.
- Buses and Commercial Vehicles: The GST rate for buses and commercial goods vehicles has been reduced from 28% to 18%. For buses, this will lower the upfront cost and spur demand from fleet operators and state transport undertakings. For commercial vehicles, it will reduce freight rates, which will have a cascading effect, lowering logistics costs and helping to ease inflationary pressures.
The rationalization of GST rates is seen as a move that provides policy certainty, encourages fresh investments, and supports a shift toward cleaner mobility by making new, fuel-efficient models more affordable.