The government proposed cutting GST on small cars from 28% to 18% and reducing GST on health and life insurance premiums to as low as 5% or zero.
India’s government has proposed reducing the Goods and Services Tax (GST) on small cars from 28% to 18% and potentially lowering GST on health and life insurance premiums to 5% or zero, on 18 August 2025.
Small cars, defined as petrol vehicles under 1200cc and diesel under 1500cc, currently account for a declining share of India’s 4.3 million annual passenger vehicle sales. The tax reduction is expected to boost sales for major manufacturers such as Maruti Suzuki, Hyundai Motor India, and Tata Motors.
Larger vehicles, which now face GST of 28% plus additional levies of up to 22%, may be subject to a new combined tax rate of about 40%, with details still being finalised.
The proposed revisions sparked a rise in auto and insurance company shares, lifting the broader market.
India plans to cut its consumption tax by October, moving to a simplified two-tier GST structure of 5% and 18%, replacing certain current rates of 12% and 28%.
