GST cut a 200 bps demand upshift for 2-wheelers, 100 bps for passenger vehicles

New Delhi, Sep 5 (IANS) Two-wheelers and passenger vehicles (PVs), which together account for 90 per cent of the domestic automobile industry’s volume, are expected to see demand increase by 200 basis points (bps) and 100 bps, respectively, a Crisil report showed on Friday.

As a result, two-wheeler sales volume is expected to grow 5-6 per cent this fiscal, while that of PVs may rise 2-3 per cent.

The Goods and Services Tax Council’s decision to move to a two-rate structure of 5 per cent and 18 per cent, effective September 22, is a timely move that will revive demand for automobiles, according to a Crisil report.

Beyond demand revival, simplified slabs will also streamline compliance and lower logistics costs through smoother interstate taxation, supporting profitability across the value chain.

“With the GST cut fully passed on, vehicle prices are expected to drop 5-10 per cent (Rs 30,000–60,000 on small PVs; Rs 3,000–7,000 on two-wheelers),” said Anuj Sethi, Senior Director, Crisil Ratings.

With the rate cut coinciding with the Navratri and the festive season, sentiment would get a timely boost. Coupled with new launches, softer interest rates and improved affordability, this should drive a stronger second half for the automobile sector, he mentioned.

Under the revised GST structure, rates on small PVs, two-wheelers up to 350 cc (nearly 90 per cent of the segment sales), commercial vehicles (CVs) and three-wheelers will drop to 18 per cent from 28 per cent.

Mid- and larger PVs will also see a 3-7 per cent cut, while tractors will benefit from a reduction to 5 per cent and 18 per cent from 12% per cent and 28 per cent, respectively.

For CVs, the lower GST should offset the cost push from the mandatory AC cabin requirement from October 1, 2025.

In contrast, motorcycles above 350 cc will face a higher levy, moving to a 40 per cent special rate, compared with the current 31 per cent, including compensation cess, making them costlier.

“Higher volume will improve capacity utilisation and operating leverage, translating to stronger cash flows and healthier margins for automakers, reinforcing their already stable credit profiles,” said Poonam Upadhyay, Director, Crisil Ratings.

—IANS

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