Ministry of Road Transport & Highways
Road Transport and Auto Sector Get a Big Push Through GST Rationalisation
Affordable Vehicles: GST Cut to 18% for Bikes, Cars & Buses; Tractors at 5%
Stronger Supply Chains and MSME Growth Through Auto-Component Benefits
Posted On:
12 SEP 2025 1:00PM by PIB Delhi
The GST Council, chaired by the Union Finance & Corporate Affairs Minister, approved a major rationalisation of GST rates for the road transport and automobile sector in its 56th meeting, providing tax relief for two-wheelers, cars, tractors, buses, commercial vehicles, and auto components.
This reform is poised to make vehicles more affordable, enhance logistics efficiency, and stimulate demand in both urban and rural markets. It will also strengthen MSMEs in the auto-component supply chain, create employment, and promote cleaner, more efficient mobility.By simplifying and stabilising the tax framework, the move boosts manufacturing competitiveness, supports farmers and transport operators, and reinforces national initiatives such as Make in India and PM Gati Shakti.
Driving Growth in the Automobile Sector
The recent reduction in GST rates across categories of vehicles and auto components is a transformative step that will benefit manufacturers, ancillary industries, MSMEs, farmers, transport operators, and millions of workers in both the formal and informal sectors.
Key impacts:
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Lower prices for two-wheelers, small cars, tractors, buses, and trucks.
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Higher demand leading to job creation in manufacturing, sales, logistics, and services.
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Expansion of credit-driven vehicle purchases through NBFCs, banks, and fintechs.
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Stronger Make in India push, improved competitiveness, and cleaner mobility.
Sector-Wise GST Rate Changes
|
Vehicle Category
|
Previous GST Rate
|
New GST Rate
|
Key Benefits
|
|
Two-Wheelers (<350 cc)
|
28%
|
18%
|
Affordable mobility for youth, rural households, gig workers.
|
|
Small Cars
|
28%
|
18%
|
Encourages first-time buyers, boosts sales in smaller towns.
|
|
Large Cars
|
28%+ Cess
|
40% (Flat)
|
Simpler taxation, full ITC eligibility, affordability for aspirational buyers.
|
|
Tractors (<1800 cc)
|
12%
|
5%
|
Strengthens India’s global tractor hub status, boosts farm mechanisation
|
|
Buses (10+ seater)
|
28%
|
18%
|
Affordable public transport, supports fleet expansion.
|
|
Commercial Goods Vehicles
|
28%
|
18%
|
Lower freight cost, reduced inflationary pressures, stronger supply chain.
|
|
Auto Components
|
28%
|
18%
|
Stimulates ancillary MSMEs, boosts domestic manufacturing.
|
|
Insurance for Goods Carriage
|
12%
|
5% (with ITC)
|
Supports logistics, reduces operating costs for transporters.
|
Benefits Across the Ecosystem
1. Employment & MSMEs
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Over 3.5 crore jobs in auto and allied sectors were supported.
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Multiplier effect on small businesses in tyres, batteries, glass, steel, plastics, and electronics.
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More opportunities for drivers, mechanics, gig workers, and service providers.
2. Cleaner and Safer Mobility
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Incentivises replacement of old, polluting vehicles with fuel-efficient models.
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Promotes adoption of buses and public transport, reducing congestion and emissions.
3. Boost to Logistics & Exports
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Reduced freight rates strengthen agriculture, FMCG, e-commerce, and industrial supply chains.
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Improves India’s export competitiveness under PM Gati Shakti and the National Logistics Policy.
The GST rationalisation represents a key milestone in India’s drive toward affordable, efficient, and sustainable mobility. By lowering the tax burden on vehicles and auto components, the reform benefits consumers, strengthens the auto ecosystem, supports MSMEs, and boosts employment across both urban and rural India.
Effective 22nd September 2025, these reforms reaffirm India’s commitment to a simpler, fairer, and growth-oriented GST framework, ensuring ease of living for citizens and ease of doing business for enterprises.
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(Release ID: 2165916)
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