How GST 2.0 changed India’s car market and boosted small car sales

The government introduced GST 2.0 in India in September 2025, bringing major tax corrections across several sectors. One of the biggest beneficiaries of the revised structure was the automotive industry, where tax cuts were substantial across multiple vehicle categories.

Before looking at the impact on sales, it is important to understand how the revised tax structure changed across segments.

The tax cuts that reshaped the market

For small petrol cars with engines up to 1,200cc and measuring under four metres in length, the earlier tax structure consisted of 28% GST plus 1% cess, taking the effective tax rate to 29%. Under GST 2.0, this category was moved to an 18% GST slab with no cess.

Similarly, small diesel cars under four metres in length and powered by engines up to 1,500cc earlier attracted 28% GST along with 3% cess, taking the total tax burden to 31%. This category was also revised down to 18%.

Cars measuring above four metres and powered by petrol engines larger than 1,200cc or diesel engines larger than 1,500cc earlier attracted a combined tax rate of 45%, including 28% GST and 17% cess.

Luxury cars also benefited from the revisions. Earlier, these vehicles attracted 28% GST along with 20% cess, while large SUVs attracted a higher cess of 22%, taking total taxation to 48% and 50% respectively. Under the revised structure, the overall tax slab for these vehicles was reduced to 40%.

Taxation on hybrid vehicles was also revised. The earlier rate of 43%, consisting of 28% GST and 15% cess, was brought down to 40%. However, taxes on electric vehicles remained unchanged.

Immediate impact on passenger vehicle sales

The GST corrections came into effect in the middle of September 2025. Domestic passenger vehicle sales, excluding other segments, showed a jump across multiple manufacturers in the months that followed.

For Maruti Suzuki, domestic passenger vehicle sales stood at 1,27,905 units in August 2025. In September 2025, sales rose slightly to 1,23,242 units before jumping to 2.39,567 units in October 2025.

Mahindra also saw a sharp rise. The company sold 43,632 units in August 2025, followed by 37,659 units in September and 67,918 units in October 2025.

For Hyundai Motor India, sales stood at 42.226 units in August 2025, increasing to 35,812 units in September and 65,442 units in October.

Tata Motors recorded passenger vehicle sales of 38,286 units in August 2025, which rose to 41,151 units in September and 75,352 units in October.

Meanwhile, Toyota Kirloskar Motor sold 24,954 units in August 2025, followed by 20,303 units in September and 34,868 units in October 2025.

While the immediate rise in sales after the GST revision could partly be attributed to pent-up demand from buyers waiting for the revised tax regime, the trend continued well beyond the initial months.

April 2026 sales show sustained momentum

To understand whether the demand surge was temporary or sustained, sales figures from April 2026 can be compared against April 2025, which was before GST 2.0 was announced.

For Maruti Suzuki, April 2026 sales stood at 1,58,509 units, compared to 1,40,971 units in April 2025. This marked a year-on-year increase of 12.4%.

Mahindra sold 55,236 units in April 2026, compared to 45,130 units in April 2025, resulting in a 22.39% year-on-year increase.

For Hyundai Motor India, April 2026 sales stood at 47,449 units compared to 45,203 units in April 2025, marking a 4.9% increase year-on-year.

Tata Motors sold 57,688 passenger vehicles in April 2026, up from 45,203 units in April 2025. This translated to a 27.62% year-on-year increase.

Meanwhile, Toyota Kirloskar Motor sold 27,006 units in April 2026 compared to 25,609 units in April 2025, resulting in a 5.4% increase year-on-year.

The data suggests that the sales spike following September 2025 was not limited to pent-up demand alone. Even several months later, and well into the new calendar year, passenger vehicle demand remained strong.

Small cars emerged as the biggest beneficiaries

While GST benefits extended across segments, the revised structure particularly favoured small cars and manufacturers with a strong presence in that category. Maruti Suzuki serves as an example.

In the mini segment, the company sold 6,853 units in August 2025 and 7,208 units in September 2025. In the compact segment, sales stood at 59,597 units in August and 66,882 units in September.

By October 2025, mini segment sales rose to 9,067 units and further increased to 12,347 units in November 2025, nearly double the pre-GST 2.0 levels. Compact segment sales also jumped to 76,143 units in October 2025.

The momentum continued into 2026 as well. In April 2026, Maruti Suzuki recorded mini segment sales of 16,066 units and compact segment sales of 80,659 units. In comparison, the same segments stood at 6,332 units and 61,591 units respectively in April 2025.

This translated to a year-on-year increase of 153.7% for the mini segment and 31.03% for the compact segment.

Other segments also saw growth, although not at the same scale as small cars. For example, in April 2026, Maruti Suzuki sold 59,022 utility vehicles compared to 56,553 units in April 2025, marking a year-on-year increase of 4.4%.

[Note for Readers: Sales figures mentioned in this article are based on retail sales data across manufacturers, wherever available. However, the Maruti Suzuki mini and compact segment breakup cited in the latter part of the story is based on the company’s reported wholesale dispatch data.]

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