India is considering a major overhaul of its Goods and Services Tax (GST) structure, with proposals to reduce the tax burden on small cars and insurance premiums. A government source revealed on Monday that the GST rate on small petrol and diesel cars could drop significantly from 28% to 18%. This bold move aims to revive slowing sales in the small car segment and boost consumption during the upcoming festive season.
The reduction is part of a broader initiative by Prime Minister Narendra Modi’s government, marking some of the deepest tax revisions since GST was introduced in 2017. Maruti Suzuki, India’s largest carmaker, stands to benefit immensely from this change. The company has seen its market share shrink over the past five years as consumer preferences shifted toward larger SUVs.
Small cars, defined as those with engine capacities below 1200cc for petrol and 1500cc for diesel, have struggled recently. Once dominating nearly half of all passenger vehicle sales, they now account for just a third of the market. Models like Maruti’s Alto, Dzire, and Wagon-R have faced declining demand, directly impacting the company’s profitability.
The proposed tax cuts could arrive just in time for Diwali, India’s biggest shopping festival in October. If approved, this would provide a much-needed lift to automakers like Hyundai Motor India and Tata Motors, which also rely on small car sales.
In addition to automotive relief, the government is considering slashing GST on health and life insurance premiums from 18% to as low as 5% or even zero. This change could make insurance more accessible to millions of Indians while strengthening the financial services sector.
The potential tax revisions have already sent waves through the stock market. Shares of major automakers, including Maruti, Mahindra & Mahindra, and Bajaj Auto, surged between 2% and 8% following the news. Insurance giants like SBI Life and LIC also saw notable gains, contributing to a broader market uptick of over 1%.
Meanwhile, discussions are ongoing about how to handle larger vehicles. Cars with higher engine capacities currently face a 28% GST plus additional levies, pushing total taxes up to 50%. A new special rate of 40% may be introduced, though officials are still debating whether supplementary charges should apply to keep the total tax burden consistent.
India’s GST system, which consolidated various state taxes in 2017, has faced criticism for its complexity. With four primary tax brackets (5%, 12%, 18%, and 28%), businesses and consumers alike have struggled with compliance. These latest proposals could simplify the landscape while stimulating key sectors of the economy.