A potential GST rate cut on smaller cars could boost demand in the mass-market segment, but luxury car sales are expected to stay muted, according to ICRA’s Jitin Makkar. He noted that luxury car growth, which had outpaced the overall passenger vehicle market between FY22 and FY25 due to rising aspirations and younger buyers, may slow down in FY26. Factors such as high US tariffs and economic uncertainty have already led to tepid sales in H1 2025, and while festive season purchases may offer some recovery, full-year growth is likely to remain modest.
Prime Minister Modi’s announcement of major GST reforms suggests a shift from the current four-tier structure to a two-tier system—5% and 18%—with a 40% slab reserved for sin goods, including luxury cars. This may reduce luxury car prices by removing the current compensation cess. Brands like BMW, Audi, and Mercedes-Benz are urging quick clarity on the new GST rates, as uncertainty is causing consumers to delay purchases. Automakers are hopeful that post-GST announcements will revive festive sales and restore momentum.
