GST on Commercial Vehicles Cut to 18%, Auto Sector Set for Revival

The Goods and Services Tax (GST) Council’s recent decision to slash rates on commercial vehicles marks a turning point for India’s automotive sector. Effective September 22, 2025, the tax on three-wheelers, buses, ambulances, and trucks will fall from 28% to 18%. This long-awaited relief is expected to ease acquisition costs, revive sales, and inject fresh momentum into an industry struggling with sluggish demand.

A Simplified Tax Structure for Automobiles

The reduction is part of a wider rationalisation of automobile taxation, bringing the sector largely under two slabs—5% for electric vehicles and 18% for most petrol and diesel-powered vehicles. Experts say this reform not only simplifies the system but also offers businesses clarity and long-term stability.

Price Relief for Buyers and Fleet Operators

For customers, the immediate benefit will be more affordable vehicles. Market analysts estimate on-road prices of commercial vehicles will drop by 6–8% across categories, while entry-level and midsize models may see steeper reductions of 12–13% thanks to the withdrawal of cess alongside the GST cut. The timing, just ahead of the festive season, is expected to fuel fresh demand from transporters, small fleet operators, and first-time buyers.

Industry Welcomes “Transformative” Move

Industry bodies such as SIAM have hailed the rate cut as a “transformative measure” that expands affordability and broadens the customer base. Dealers are also optimistic, pointing out that the removal of the compensation cess reduces compliance burdens, eliminates classification disputes, and makes taxation more straightforward for manufacturers and retailers alike.

Stock Market and Investor Confidence Surge

The announcement has already boosted investor sentiment. Shares of leading automakers, including Mahindra, Tata Motors, Maruti, and Hero MotoCorp, surged by up to 8% on the day of the decision. Analysts see this as a clear signal of market confidence in an imminent recovery of vehicle sales and industry growth.

Setting the Stage for Revival

Commercial vehicle manufacturers expect a sharp rebound in demand during the final quarter of 2025, with postponed purchases now likely to convert into new orders. The rate cut is also expected to make fleet upgrades and expansions more viable for logistics, construction, and transportation companies—driving efficiency across supply chains and stimulating wider economic activity.

Sustainability Still a Priority

While diesel and petrol commercial vehicles gain relief with the new 18% GST rate, electric vehicles continue to enjoy a lower 5% tax. This ensures that the push for sustainability remains integral to India’s mobility sector even as affordability improves for conventional models.

Outlook for the Road Ahead

Though dealer margins on existing stock may narrow in the short term, the broader impact of the rate cut is expected to be positive, with higher sales volumes offsetting near-term challenges. With simplified taxation, reduced prices, and strong festive demand, the commercial vehicle market looks set to accelerate once again—offering both industry revival and greater mobility for transport businesses across India.