India's GST Overhaul: A Tax Cut Drive to Revive Auto Sector

India plans to reduce GST on small cars and insurance premiums as part of major tax cuts. The move aims to rejuvenate car sales, particularly benefitting manufacturers like Maruti Suzuki. The proposal, expected to be finalized by October, also promises a new GST structure with two main rates.

India is gearing up for a transformative reduction in the Goods and Services Tax (GST) on small cars and insurance premiums, a government source revealed on Monday. The proposal, which seeks to cut GST on small cars from 28% to 18%, represents the most substantial tax overhaul since Narendra Modi's administration began in 2017.

The anticipated reductions come as a strategic effort to boost the sales of small cars, crucial for major manufacturers like Maruti Suzuki, Hyundai Motor India, and Tata Motors. This market segment has experienced a decline, with small cars now constituting only a third of passenger vehicle sales compared to almost half before the pandemic.

The proposed tax adjustments have ignited positive movement in the stock market, notably benefiting shares in automotive and insurance sectors. With the final GST rate decisions pending approval from the GST Council in October, India edges closer to a revamp of its complex tax system, aiming for streamlined two-rate brackets of 5% and 18%.

(With inputs from agencies.)