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Commerce Minister Piyush Goyal said he hopes the auto industry will pass on the benefits of the recent GST rate rationalisation to consumers
Commerce Minister Piyush Goyal (Image: PTI/File)
Union Commerce and Industry Minister Piyush Goyal on Wednesday said he hopes the automobile industry will pass on the benefits of the recent Goods and Services Tax (GST) rate rationalisation to consumers, even as the government works to resolve the issue of compensation cess on existing dealer stocks.
GST rate rationalisation for automobiles
Following the GST changes, internal combustion engine (ICE) cars and two-wheelers now fall under two slabs — 18% and 40%. Three-wheelers and commercial vehicles (CVs) have been placed in the 18% slab. Importantly, there is no compensation cess on automobiles under the new structure.
Previously, ICE cars attracted 28% GST plus a cess of 1% to 22%, depending on the car’s type, length, and engine capacity, taking the overall tax burden to between 29% and 50%. ICE two-wheelers were taxed at 28% GST, with a cess of up to 3%, while ICE three-wheelers and CVs faced a flat 28% GST with no cess.
For electric vehicles (EVs), the GST remains unchanged at 5%. Hydrogen fuel cell vehicles (FCEVs) have been reduced from the 12% slab to 5%. Both EVs and FCEVs continue to be exempt from cess.
The revised GST rates will be effective from September 22, coinciding with the start of the nine-day Navaratri festival.
Goyal urges OEMs to pass on benefits
“I hope all of you will give good deals to consumers, as families will come in larger numbers from September 22. I hope you all honestly pass on the benefits of the GST reductions to the consumers,” Goyal said at the 7th Auto Retail Conclave organised by the Federation of Automobile Dealers Associations (FADA).
Original equipment manufacturers (OEMs) have already indicated that they plan to pass on the benefits to customers, a move expected to reduce vehicle prices.
The compensation cess challenge
One sticking point is the unclaimed cess paid on dealer inventory. Dealers who purchased vehicles at the old rate (28% GST plus cess) will not be able to claim credit for the cess after September 22. Industry estimates put the unclaimed cess at around Rs 2,500 crore.
Speaking on this issue, Goyal said, “The finance ministry is taking it up and I will also take it up with the ministry in terms of what could be an amicable way to go forward. Whenever there is a transition, there are difficulties. I am sure the OEMs and you (dealers) must also be working together to see how to ameliorate the issue.”
Earlier this week, it was reported that the Central Board of Indirect Taxes and Customs (CBIC) is holding discussions on creating a mechanism to refund or adjust the cess burden.
Dealers’ concerns
FADA President C S Vigneshwar told Moneycontrol on the sidelines of the conclave that the cess burden should not fall on dealers. “It was supposed to be paid by the end user. Because I am holding stock right now, unfortunately, the current announcement says that it will lapse. The whole point of it lapsing does not make sense because I, as a middleman carrying stock, should not be punished because I am not the end user of these vehicles,” he said.
Vigneshwar added that dealers are exploring legal options but continue to liaise with the government for a resolution. “This ambiguity needs to go away because only then can we start getting back to business as usual. Right now, nothing is happening as everyone seems to be waiting for September 22,” he noted.
At the same time, Vigneshwar welcomed the broader GST reforms, calling them a “big bang reform” that will generate excitement in the market and boost customer demand.
Beyond tax reforms, Goyal also highlighted the government’s efforts to finalise multiple free trade agreements (FTAs). “Certainly, we will be protecting our domestic manufacturers and OEMs, but we will also have to have certain fair competition because competition brings efficiency and helps you improve your product quality. Competition ensures that the customer gets a fair deal,” he said.
With FTAs, India could see a wider variety of cars and models entering the market, Goyal noted, adding that auto dealers will play a key role in servicing this growth.
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a…Read More
Aparna Deb is a Subeditor and writes for the business vertical of News18.com. She has a nose for news that matters. She is inquisitive and curious about things. Among other things, financial markets, economy, a… Read More
September 11, 2025, 08:25 IST
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