AUTO
Auto News: The demand for small cars may increase once again in India. The reason for this is that buying small cars will become a little cheaper. The government is considering reducing the tax on small cars in the new GST reform. If this happens, the entry-level cars, which have been getting very expensive in the last few years, will become cheaper again.
In the last few months, the demand for small cars in the Indian market has decreased very rapidly. This affected the sales of Maruti Suzuki, Hyundai, and Tata Motors. There are many entry-level cars in their portfolio. On the other hand, the increasing demand for SUVs also put small cars in trouble.
According to people with knowledge, small cars can be placed in the 18% tax slab in the proposed Goods and Services Tax (GST). Currently, 28% GST and 1% cess are levied on them. This will reduce the tax burden significantly. Small cars will be included in this. Small cars mean vehicles up to 4 meters in length and with less than a 1200cc engine.
A special tax of 40% will be levied on big cars and SUVs. Currently, a 43-50% tax (GST + cess) is levied on them. There will be no change on electric vehicles, and 5% GST will be levied on them as before.
Prime Minister Narendra Modi said in his Independence Day speech, "We are bringing the next generation GST reform." This will reduce the tax burden across the country. This will be a gift for the countrymen before Diwali. There is a proposal of two slabs in this. The government has proposed to maintain the rates of 5% and 18% and remove the 12% and 28% tax. Apart from this, it has been suggested to impose a special rate of 40% on 6-7 items.
According to the proposal, there will be 5% GST on everyday items. 18% tax will be levied on expensive consumption items of the middle class and industrial goods. White goods like big TVs and dishwashers can also now come under the tax slab of 18%, reduced from 28%. This can further increase the demand.
According to market experts, if the GST is reduced by 11%, the ex-showroom price of small cars can be reduced by about 12-12.5%. This will result in a direct saving of up to Rs 20,000-25,000 on a car. This reduction will provide relief to those buying small and first cars. However, this relief can benefit not only hatchbacks but also small SUVs like the Hyundai Exter and Tata Punch. According to a large automobile dealer in Delhi-NCR, currently the total tax (GST + registration + insurance) on small cars is up to 41-42%.
In the last fiscal year, 2025, sales of compact cars and hatchbacks fell by 13% to around 10 lakh units. On the other hand, sales of SUVs increased by 10.2% to 23.5 lakh units. The share of small cars in the total passenger vehicle market declined for the fifth consecutive year to 23.4%. In the first four months of the current financial year, it fell further to 21%. In the last 5-6 years, due to strict safety and emission regulations, the prices of small cars have increased by 30-40%. Partho Banerjee, Marketing and Sales Head, Maruti Suzuki, said that entry-level customers are not able to buy cars due to high prices.
For some time now, Maruti Suzuki, Tata Motors, and Hyundai, which sell affordable cars, have been witnessing a continuous decline in sales. Last month in July, Maruti's annual growth was only 0.2, Hyundai's sales fell by 10.3 percent, and Tata's sales fell by 11.6 percent. All three companies sell many vehicles with up to 1200 cc engines. Mahindra has been benefiting from the increasing demand for SUVs, as it has SUVs in its portfolio. If the prices of vehicles are reduced, then its hatchback car sales may increase once again.
Maruti's portfolio of cars with engines smaller than 1200 cc includes models like Swift, FRONX, Dzire, Baleno, Wagon R, Ignis, Alto K10, Eeco, and Celerio. Hyundai sells models like the i20, i10, Exter, and Aura. Tata sells models like Punch and Tiago.
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