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Automobile Sector - GST 2

ICICIdirect Research 22 Aug 2025 DISCLAIMER

For the auto sector, this is substantially positives as ICE powered vehicles could see a reduced tax burden, while EVs will retain their favorable 5% GST rate. Currently automobiles are taxed at highest GST slab rate i.e. 28%. A compensation cess, ranging from 1-22%, is levied on top of this rate.
The total tax incidence on cars, depending on engine capacity and length, ranges from 29% for small petrol cars to ~50% for SUVs.
For Two-wheelers effective taxation is in the range of 28%-31%, and three wheelers, 28%. Tractors and CVs attract 12% / 28% GST, respectively.
If the base GST rate of 28% gets revised to 18%, this is positive for the entire sector and is expected to drive demand across all segments (PV, 2-W, 3-W & CV).
This shall lower the initial purchase price of vehicles for consumers in the range of ~5-10%.
For compact cars effective taxation (GST+ cess) can get revised from 28- 31% to 21% while big SUV’s effective taxation (GST+ cess) can potentially decline from ~50% to ~40%.
For 2-W’s, effective taxation can get revised from ~28-31% to ~18-21%.
Entry level segment has been the real pain point and subject to muted volume growth in the recent past. We believe this space will be the biggest beneficiary of GST rate cut
Top beneficiaries - Maruti Suzuki in PV space, Bajaj Auto in 2W/3W space.

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