What changed under GST 2.0
One policy decision has wiped tens of thousands off sticker prices across Indian showrooms. From September 22, 2025, the country moved to a simplified auto tax structure that cuts GST on small cars to 18%, keeps EVs at 5%, and replaces a messy cess regime on bigger vehicles with a flat 40% GST. Net effect: entry cars get much cheaper, mid-size and many large SUVs lose the punitive cess, and buyers finally see clarity in pricing.
The 56th GST Council meeting pushed through the biggest reset since 2017. The rules are simple to follow:
- Small cars (petrol/petrol hybrid/LPG/CNG) up to 1,200cc and 4,000mm length: 18% GST
- Small cars (diesel/diesel hybrid) up to 1,500cc and 4,000mm length: 18% GST
- Vehicles above these thresholds: 40% GST, with no additional cess
- Electric vehicles: 5% GST (unchanged)
- Three-wheelers, motorcycles up to 350cc, and goods carriers: down to 18% GST
Why does that matter? Under the old regime, small cars faced 28% GST plus small cesses, while many SUVs were taxed at an effective 43–50% after adding cess. Now, small cars drop to 18%, while many bigger vehicles settle at a straight 40%. That’s a cut for a lot of popular SUVs that earlier paid the highest levy.
The timing was not accidental. The government announced the reform on September 3, flagged it as part of a broader tax rationalisation push, and made it live on the first day of Navratri—when auto sales typically pick up. The goal is clear: kick-start demand, reduce ownership costs, and keep India in the race to become a global auto manufacturing hub.
There’s more under the hood. The reform cleans up the earlier cascade of taxes, so manufacturers and dealers have less leakage and better cash flow. The industry expects lower working capital stress at dealerships, fewer pricing disputes, and quicker model updates because tax uncertainty reduces.
EVs still enjoy the sweetest deal at 5%. That won’t change overnight, and it keeps electric two-wheelers and cars compelling for fleet and city buyers. But the big psychological shift is in the small-car lane: sub-4m petrols and diesels that millions buy as their first family car now have a much easier on-ramp.
Winners, losers, and what buyers should do
The price cuts are already showing up on ex-showroom stickers. Hyundai fired the first big salvo with official reductions across its line-up. Tata Motors has started applying the new rates at dealerships. Maruti Suzuki hasn’t formally announced a new price list yet, but dealer chatter and analyst notes point to meaningful drops on bestsellers.
- Hyundai Grand i10 Nios: cheaper by ₹73,808
- Hyundai Aura: down by ₹78,465
- Hyundai Exter: reduced by ₹89,209
- Hyundai i20: lower by ₹98,053
- Hyundai Venue: cut by about ₹1.23 lakh
- Hyundai Creta: trimmed by ₹72,145
- Hyundai Tucson: biggest reduction at roughly ₹2.4 lakh
- Tata Motors: reductions applied across the portfolio; Punch among the key beneficiaries
- Maruti Suzuki (expected): Alto K10 ~₹40,000, WagonR ~₹57,000, Swift ~₹58,000, Dzire ~₹61,000, Baleno ~₹60,000
On SUVs and crossovers, the impact varies by engine and length. A sub-4m petrol like the Tata Punch or Maruti Brezza sits squarely inside the 18% slab. In Mumbai, the Punch top variant drops from ₹11.95 lakh to about ₹10.75 lakh ex-showroom—a 5–7% dip that typically pulls the on-road price down by more in rupee terms once you add insurance and registration on a lower base.
Mid-size SUVs like the Hyundai Creta benefit from the cess going away. Depending on the powertrain and earlier effective tax, buyers are seeing cuts close to ₹90,000. Step up the ladder and the savings get chunky: Mahindra’s XUV700 trims more than ₹2 lakh in several variants, while Hyundai’s Tucson lops off about ₹2.4 lakh. On some larger SUVs and luxury models that were earlier near the 50% slab, industry estimates peg the relief at up to ₹8.9 lakh.
Hybrids are a quiet winner where they meet the “small car” definitions. Models like Toyota’s Urban Cruiser Hyryder and Maruti’s Grand Vitara hybrids can slide into the 18% GST bracket if they match the length and engine-size thresholds. That’s a stark change from the earlier 28% plus 15% cess—effectively around 43%—that made hybrids feel overpriced against diesels.
Two-wheelers up to 350cc and three-wheelers join the party at 18%, a big deal for commuter riders and city logistics. Goods carriers dropping to 18% matters for MSMEs and transporters fighting tight margins on diesel, tyres, and tolls. Expect fleet renewals to pick up in Q4 if financing stays stable.
How big is the monthly saving? Take a hatch with an ex-showroom of ₹8 lakh before the change. At the old 28% GST, the tax was ₹2.24 lakh, so ₹10.24 lakh ex-showroom. At 18%, the tax is ₹1.44 lakh, so ₹9.44 lakh. Knock ₹80,000 off the base, and your insurance and road tax also calculate on a lower number. On a five-year loan at 10.5% interest with 85% financing, that can shave roughly ₹1,500–₹2,200 off the EMI, depending on the city’s registration slab and add-ons you pick.
A few caveats before you rush to book:
- Ex-showroom drops do not change state road tax slabs themselves, but a lower base reduces the absolute rupees you pay.
- On-road prices will vary by state due to registration rates, handling charges, and insurance choices.
- Not every variant qualifies for 18%. Watch the engine size, fuel type, and length. A petrol automatic with more power could sit above the small-car threshold while the manual stays inside.
- Dealer stocks billed before September 22 may need re-invoicing or credit notes for buyers. Ask for written price protection if you booked earlier.
For manufacturers, the new regime forces a rethink on variant strategy. Expect more small-displacement turbo-petrols and hybrids tuned to slot under 1,200cc and 4,000mm, because that’s where the price-to-demand sweet spot now is. Diesels up to 1,500cc in compact SUVs stay viable, especially outside big metros where fuel economy still drives purchase decisions.
The used-car market will feel this too. When new-car prices fall, near-new used prices usually adjust with a lag. If you’re trading in, lock an exchange quote before you reveal you know the new price list. Dealers recalibrate fast when supply is tight.
Financing is the other lever. Lenders are likely to push pre-approved festive loans as OEMs chase volume. With lower ex-showroom prices, loan-to-value ratios work better, and EMI affordability improves even without interest-rate cuts. Keep an eye on processing fees—don’t let small charges eat into your tax savings.
For fleets and ride-hailing drivers, the maths improves across the board. Lower upfront cost plus steady resale values can pull down total cost of ownership by 6–10% on mass-market models. EVs already had the TCO edge for city duty cycles; now small petrols and CNGs close the gap for mixed-use routes.
Will any model get more expensive? The flat 40% GST could raise the tag on a few mid-tier models that earlier sat at 28% with little or no cess. But for most popular SUVs that bore the highest cess, the total levy falls, not rises. That’s why the headline cuts on cars like the Creta, XUV700, and Tucson are material.
What about the industry’s health? Cleaner taxes reduce friction. With cess out of the way, pricing is less lumpy across trims, and product planning gets easier. Dealers see fewer blocked credits and faster turnover. Expect shorter waiting periods on high-demand variants as OEMs tweak production to the new demand curve.
Key timelines and the fine print for buyers:
- Effective date: September 22, 2025. Any fresh invoice from this date should reflect the new GST rate.
- Bookings before the date: Ask your dealer for a revised proforma. Most brands are issuing credits to align with the new tax.
- Insurance and accessories: Re-quote after the price change; both are calculated off the ex-showroom base.
- Delivery rush: Festive-season demand will spike. If you want a specific colour/trim, book early and insist on price protection in writing.
Bottom line for shoppers: if you were eyeing a Swift, Punch, Venue, Nexon, Brezza, or i20, this is a friendly window. If you’re stretching to a Creta or XUV700, the cuts are big enough to nudge you a trim higher without blowing the budget. And if you were fence-sitting on a hybrid, the math just got a lot easier—provided it fits the small-car rules.