In Short : India is prepared to embark out dramatic GST reforms by October 2025, slashing taxes on small cars from 28% to 18% and lowering insurance prices to between 0–5%. These revisions aim to make automobiles more affordable while positioning India as a worldwide powerhouse for EV production through incentives including a 5% GST on EVs and PLI schemes.
Cheaper Cars, Stronger Demand
The planned GST drop for compact cars—those with engine capacity under 1,200 cc for petrol and 1,500 cc for diesel—could slash retail prices by 5–10%. This decision is anticipated to reinvigorate sluggish demand in this segment, helping automakers such as Maruti Suzuki, Hyundai India, and Tata Motors, which rely significantly on these models for over 60% of their sales.
Reforming Insurance and Increasing Access
Reducing GST on insurance will also help drive vehicle ownership. A 5% GST on health and life insurance might reduce annual rates by 10–15%, enhancing affordability—particularly for middle- and lower-income people.
An EV-Friendly Tax Law
GST remains 5% for EVs, while lithium-ion batteries and charging services continue to carry 18% GST. However, combined with Production-Linked Incentives (PLI) and duty waivers on battery machinery, India is becoming an increasingly attractive destination for EV production—potentially even for global players like Tesla.
Market Shifts & Ecosystem Impacts
Lower taxes threaten to dampen demand for SUVs, which face a combined tax of ~50% (28% + cess). With two- and three-wheelers also expected to benefit from an 18% GST cut, rural and price-sensitive segments are forecasted to grow rapidly. Companies such as Hero MotoCorp and Bajaj Auto are well-positioned to leverage this potential surge.
Impact and Significance of Clean Energy
Lowering entrance hurdles for both ICE and electric vehicles promotes India’s overall energy shift. Affordable compact vehicles and EVs make clean mobility accessible to a greater population. Insurance and regulatory reforms further stabilize ownership prices, while EV-specific incentives help enhance green mobility – all contributing to emissions reduction, energy efficiency, and a cleaner, sustainable transportation ecology.
