Increase in transport services GST to 18% (with ITC) from 12% (with ITC) will be adverse for large fleet operators (M&HCV) from cash flow angle.
FinTech BizNews Service
Mumbai, September 6, 2025: The 56th meeting of the GST Council was held in New Delhi under the chairpersonship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman. The GST Council inter-alia made the recommendations relating to changes in GST tax rates, provide relief to individuals, common man, aspirational middle class and measures for facilitation of trade in GST.
GST rationalization: Broadly on expected lines
As per the latest Kotak Institutional Equities report on auto sector, the GST reset for the auto sector came broadly in line with our expectations, with rates unified at 18% across most segments and 40% for larger PVs. Assuming a full passthrough, we expect an on-road price reduction of 2-9% across most segments (EVs—unchanged, >350 cc 2W—6-7% price increase). HMCL, TVS Motors and EIM, along with M&M, MSIL and HMIL, stand to benefit the most among OEMs. Domestic ancillaries (UNOMNDA and ENDU) will benefit from stronger OEM demand, while domestic tire & battery OEMs will benefit from better pricing in the replacement segment. Export-heavy players (BHFC, BKT, SONACOMP, SAMIL) will see limited benefits.
Auto sector gets GST tailwind
The GST council has approved and reduced GST across segments, barring the >350 cc two-wheeler segment. 2Ws (<350 cc), 3Ws, CV and passenger vehicles (<1,200 cc petrol, <1,500 cc diesel and <4 m length) have seen GST reduction from 28-29% to 18%. In addition, tractor GST rates were reduced from 12% to 5%. Passenger vehicles (>1,200 cc petrol or >1,500 cc diesel) GST rates (including cess) have been cut from 43-50% to 40%. However, GST rates for the >350 cc 2W segment have increased from 31% to 40%. For EVs, GST rates remain unchanged at 5%. Assuming a full pass-through, we expect an on-road price reduction for 2Ws (<350 cc), tractors, 3Ws and CVs of 5-8% while PVs may see 2-9% price cuts depending on models. However, 2Ws (>350 cc) will see a price increase of 7%. Lower prices should stimulate demand recovery across segments, particularly in mass-market categories.
GST rationalization: Broad-based demand stimulus for auto OEMs
We believe multiple initiatives by the government, including GST cuts, will drive auto demand. A shift to 18% GST (across most segments) could reduce on-road prices by 2-9% across 2Ws, PVs, CVs and tractors, which could stimulate volumes. In terms of OEMs, we expect HMCL and TVS Motors (69-94% of the portfolio) to benefit the most, followed by Eicher Motors (however the >350 cc segment may see demand deterioration). PV and tractor OEMs (MSIL, HMIL, MM, TTMT domestic and ESC) stand to benefit, given that 78-94% of the portfolio will undergo price reduction. CV prices will also inch downwards; however, increase in transport services GST to 18% (with ITC) from 12% (with ITC) will be adverse for large fleet operators (M&HCV) from cash flow angle.
Domestic ancillaries poised to gain
Most auto components have moved to 18% (from 28% earlier). Domestic auto ancillaries are set to benefit through higher OEM demand and better pricing power in replacement (ENDU, VARRC, CIEINDIA and UNOMNDA). Tire and battery makers also gain from better pricing in replacement demand (except BKT due to higher global exposure) and better profitability through the cycle. Bearings may see limited upside as the GST is already set at 18% for the replacement segment, and there is a higher exposure to exports and industrial segment. By contrast, global ancillaries (BHFC, SAMIL and SONACOMS) see marginal gains due to export-heavy exposure and global headwinds.
