GST Revamp 2025: Small Cars and Bikes Get Cheaper — Is EV Growth at Risk?

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by

Himanshu
in

India’s GST overhaul, effective 22 September 2025, introduces a simplified two-slab structure (5% and 18%) plus a 40% on luxury/sin goods. This restructuring offers strong discounts on mass-market vehicles but raises questions about the future of the electric mobility push.

GST Rate Changes: How Vehicles Are Affected

Vehicle TypePrevious GST (incl. cess)New GST RateWho Wins
Small petrol/diesel cars (<4m, <1200cc)~28–31%18%Buyers of compact cars
Motorcycles ≤ 350cc28% + cess18%Commuter bike buyers
EVs (all types)5%5% (unchanged)Clean mobility sector
Large bikes (>350cc)28% + cess40% (new sin slab)High-end motorcycle buyers
Large cars/SUVs (>4m, >1500cc)45–50%40%Buyers of luxury vehicles

Small petrol cars and commuter bikes get a 10–12% GST reduction, slashing prices by up to ₹1 lakh in some models. However, EVs retain their 5% GST rate, which is favorable for EV makers, though analysts warn cheaper ICE vehicles may slow EV adoption.

What This Means for the Auto Industry & Consumers

Enhanced Affordability for ICE Vehicles

The reduced GST on small cars and bikes could revive demand for entry-level vehicles, particularly among middle-income buyers, thanks to notable price drops.

Continued Support for EVs

Maintaining the 5% GST on EVs reaffirms the government’s commitment to clean mobility. Both luxury and budget EVs benefit equally from this concession.

Strategic Risk for EV Adoption

As ICE prices fall, the cost advantage for EVs narrows. Analysts caution this may shift consumer preference back toward traditional petrol/diesel vehicles.

Luxury Vehicles Tax Cut

Big bikes and premium cars now fall into the 40% slab, lower than the previous 45–50% range. This helps moderate price hikes for high-end buyers.

Industry Reactions

  • Auto OEMs celebrate rising demand prospects for compact vehicles.
  • EV manufacturers caution against trends favoring ICE vehicles amid faster recovery of fuel vehicle affordability.
  • Overall, these GST changes are expected to stimulate a shift in consumer choices during the festive season.

Final Thoughts

The 2025 GST reforms deliver massive relief for buyers of small petrol cars and bikes, nudging affordability up while maintaining support for EVs. Yet, the shift may inadvertently slow EV growth, as the price element becomes less of a competitive advantage. The next few months will determine if this creates a temporary roadblock or sparks further innovation in e-mobility.