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GST rate cut could drive 5–10% demand upside in autos: NomuraNomura estimates that the GST reduction could have a multiplier effect of 1–1.5x, translating into a 5–10% increase in demand across segments. Popular models are likely to witness significant price cuts- WagonR by around 9%, Bolero by 10%, XUV700 by 7%, and Brezza and Creta by 3%.By Sudarshan Kumar  August 20, 2025, 7:02:28 AM IST (Updated)3 Min ReadThe Indian auto sector is bracing for a potential game-changing policy move as reports suggest the government may soon rationalise Goods and Services Tax (GST) rates on automobiles.

According to Nomura, a GST rate cut could trigger a meaningful upside for the sector, with passenger vehicle majors Maruti Suzuki, Mahindra & Mahindra (M&M), Ashok Leyland, and TVS Motor expected to be among the biggest beneficiaries.

Currently, automobiles fall under the highest GST slab, with small cars and two-wheelers taxed at 28%, while large cars attract 43–50% tax depending on size and features.

Under the proposed rejig, the GST rate on small cars and two-wheelers could fall to 18%, while rates on larger cars may drop to around 40%. However, motorcycles above 350cc may face an increase in tax burden, with GST possibly rising from 31% to 40%.

Nomura estimates that the GST reduction could have a multiplier effect of 1–1.5x, translating into a 5–10% increase in demand across segments. Popular models are likely to witness significant price cuts- WagonR by around 9%, Bolero by 10%, XUV700 by 7%, and Brezza and Creta by 3%.

Maruti Suzuki, with nearly 68% of its portfolio falling in the small car slab, and M&M, with 52% exposure including LCVs, are set to gain the most. The immediate sentiment in the market has been cautious, with sales reportedly slowing down in anticipation of a tax cut.

Nomura notes that the benefits of a GST cut would be more pronounced for four-wheeler OEMs than two-wheeler makers. Two-wheeler OEMs are also dealing with cost headwinds from the upcoming ABS mandate, which could eat away nearly half of the GST benefits (₹3,000–4,000 per vehicle). Interestingly, Eicher Motors, with its Royal Enfield portfolio already ABS-compliant, may emerge as a relative beneficiary within the two-wheeler segment.

Across the board, auto manufacturers could see 100–150 bps margin improvements, with OEMs having higher domestic exposure positioned to gain the most. For auto component suppliers such as Uno Minda, Samvardhana Motherson, and Sansera Engineering, the demand upswing could translate into higher volumes and stronger pricing power in the aftermarket segment. Domestic suppliers in particular stand to benefit as rising vehicle sales improve order books across the value chain.

Not all segments may benefit equally. A GST cut on ICE vehicles could turn sentiment negative for electric vehicles (EVs) by widening the price gap between ICE and EV models. Nomura warns that this move could delay EV adoption in India by 2–3 years, unless the government simultaneously introduces demand incentives specifically for EVs.

The revenue implication for the government is sizeable. A GST reduction could lead to an annual revenue loss of around ₹74,000 crore. However, assuming a 10% boost in vehicle volumes, the net impact may reduce to approximately ₹54,000 crore, suggesting that higher demand could partially offset the fiscal hit.

Also Read: FM Nirmala Sitharaman to address key GoM meetings on GST reforms: SourcesContinue ReadingFirst Published: Aug 20, 2025 7:00 AM ISTCheck out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!Tagsautomobile sectorDirect taxesIGSTIndia GST