Cars get Cheaper as Manufacturers pass on GST Benefits to Customers: Fortuner, Innova, Creta & XUV700 Make the List

The 56th Goods and Services Tax ( GST ) Council meeting was held on 3 September, 2025 at Sushma Swaraj Bhavan. The meeting, which was chaired by Union Finance Minister Nirmala Sitharaman, brought forth significant changes to the existing indirect tax regime in India and set in motion sharp price corrections across the car market.

The most notable decision by the Council, however, was the condensation of multiple tax slabs into a simplified framework and the removal of the compensatory cess that previously pushed effective taxes on many SUVs above 40-50%.

Under the new regime most small cars, two-wheelers, commercial vehicles and all auto parts move to an 18% slab, EVs stay at 5%, and large/mid-size cars migrate to a flat 40% GST with zero cess. The practical effect is immediate: automakers from mass market to luxury have announced that they will pass the tax savings to buyers, with revised prices effective for deliveries from 22 September 2025.

Since the cess of up to 22% on large SUVs has been removed, the overall tax burden drops. So even with a 40% GST, cars that earlier faced 50% tax now get cheaper.

Manufacturers have quickly revised their strategy to accommodate the tax changes. Hyundai said it will cut prices by up to ₹2.4 lakh across its range - with Tucson, Venue, Creta, i20 and others seeing six-figure reductions in the effective rate of the vehicles.

Tata, Mahindra, Toyota, Renault, BMW and Mercedes quickly rolled out revised price lists, offering customers savings ranging from ₹70,000 on compact cars to several lakhs on premium SUVs. Industry voices see the move as both a boost to demand and a big win in simplifying life for dealers and suppliers.

The following table mirrors published estimates of new price bands and likely savings for popular models once the new GST and zero-cess structure is applied

These estimates track published model-level revisions that have been circulated by Original Equipment Manufacturers (OEMs) and outlets. The full consumer benefit depends on manufacturers passing on the complete tax saving; early movers have committed to do so.

Tax professionals remain skeptical on the strategy adopted by certain brands to reduce the prices before September 22. Mr. Vikash Agarwal, Associate Partner at Price Waterhouse & Co. LLP cautioned that early GST benefit offers by some automakers could potentially lead to litigation. He noted that while several manufacturers have begun extending GST-linked discounts ahead of the official rate reduction on 22nd September, revenue authorities may interpret the current price cuts differently.

According to him, the tax department could treat the reduced prices as the new base price, rather than a genuine GST benefit, compelling automakers to further lower prices after the new rates come into effect.

Mr. Agarwal clarified that this risk would not arise if bookings are made now but deliveries are scheduled after September 22, once the revised rates are formally applicable.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates