Auto Sales To Hit One-Year Low In August As GST Rate Cut Buzz Slows Demand

The Great Indian Consumption season is starting on a muted note with few looking to buy two-wheelers and four-wheelers due to hopes of an upcoming GST rate cut announcement. Auto makers have pushed sales through dealers but are finding it tough to lure customers who are in a wait and watch mode.

India's consumption cycle kicks off in August with Independence Day, followed by a series of regional and national festivals. The festive season begins in South India with Onam, moves to the West with Ganesh Chaturthi, and continues with Dussehra and Durga Puja, Diwali, and concludes with Christmas and New Year.

Companies start pushing inventory from July to early August in anticipation of the festive sales. However, this year the sales have been muted after the Prime Minister announced the next set of GST reforms in his Aug. 15 speech and that paused buying of goods that are at 12% and 28% GST slabs.

Auto Sales: Closer Look

Retail auto sales, as per government's Vahan portal, is expected to be at a 12-month low. So far, the sales are at approximately 18 lakh units as of Aug. 26. With just two more days to go this sale is expected to rise marginally. Retail sales in September 2024 stood at 17.4 lakh units while in December 2024, it was 17.75 units.

The GST Council will meet on September 3-4 to discuss and approve rate rationalisation. This would likely include moving to a two-rate structure with products at 12% moved to 5% and products in the 28% bracket getting merged with 18%.

It is noteworthy that the government gets 5-6% of its revenue from 12% GST slab and 13-15% GST revenue from the 28% tax slab.

At the moment, all types of internal combustion engine vehicles, i.e. passenger vehicles, two-wheelers, three-wheelers and commercial vehicles fall under the 28% GST slab. While the electric vehicles come under 5% slab, the hydrogen fuel cell vehicles are in the 12% slab.

The GST tax rate cut is unlikely to have any impact on electric vehicles and hydrogen fuel cell cars are likely to move to 5%.

Currently, passenger cars above four meters and engine capacity above 1400 cc are taxed at 28% plus compensation cess of up to 22% i.e. up to 50%. It is anticipated the government may move to charging 40% GST rate to above 1500 cc vehicles thereby giving a boost to SUV sales.

Nearly 60% of the total passenger vehicles sold in India fall under the utility vehicle category. Out of which nearly 25% of the utility vehicles sold was at 28% rate and the rest fell under the higher tax bracket.