The NIFTY Auto surged after the GST Council announced sharp reductions in tax rates across the automobile segment. The rate overhaul is expected to ease affordability pressures in the sector, which has been facing a structural slowdown.

Shares of two-wheeler makers Hero MotoCorp, Eicher Motors, Bajaj Auto, and TVS Motors advanced up to 5% in early trade. Passenger vehicle manufacturers Maruti Suzuki, Tata Motors, Hyundai, and Mahindra & Mahindra also gained up to 3%. The rally followed the Council’s decision to replace the multi-tier GST system with a simplified structure of 5%, 18%, and a special 40% rate for luxury vehicles.

New GST Rates on Automobiles

  • Two-wheelers below 350cc: Reduced from 28% to 18%.
  • Small petrol cars (<1200cc, <4000mm): Reduced from 28% to 18%.
  • Small diesel cars (<1500cc, <4000mm): Reduced from 28% to 18%.
  • Larger petrol cars (>1200cc, >4000mm): Earlier 28% plus cess (effective 43–50%), now 40% flat.
  • Larger diesel cars (>1500cc): Earlier 28% plus cess (effective 43–50%), now 40% flat.
  • Tractors and farm machinery: Reduced from 12% to 5%.
  • Tractor parts: Reduced from 12% to 5%.
  • Electric vehicles: Continue at 5%.

Beneficiaries Across Segments

Two-wheelers: Hero MotoCorp, Bajaj Auto, and TVS Motors benefit the most, with over 95% of their volumes in the sub-350cc category. Eicher Motors also gains with 86.5% of sales in this bracket.

Compact cars: Maruti Suzuki and Hyundai see the biggest lift as a large share of their portfolios fall under the reduced 18% slab.

SUVs and larger cars: Companies such as Mahindra & Mahindra, Toyota, and Honda benefit from a lower effective tax incidence despite the new 40% headline rate.

Farm segment: M&M, the market leader in tractors, gains from the 5% slab, which is expected to significantly reduce tractor prices and support rural demand.

EVs: Continuation of the 5% rate ensures ongoing cost advantages for electric vehicle manufacturers.

With a large share of volumes across two-wheelers, compact cars, and tractors moving into the 18% and 5% slabs, the auto sector is expected to benefit from lower ownership costs and improved demand visibility. The changes are set to take effect from September 22, ahead of the festive season, offering a potential boost to sales momentum.

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