The decision came as a revival for automobile retail, mainly for small cars and sub-350cc two-wheelers, for which GST was cut from 28 per cent to 18 per cent. For larger cars, it dipped to 40 per cent with the compensation cess removed. For tractors below 1,800cc, it dropped from 12 per cent to 5 per cent.
According to the Federation of Automobile Dealers Associations (Fada), most of the revival happened in small-car sales due to better-performing rural markets.
“The rise in sales of Maruti Suzuki itself is proof of how well small-car markets performed. Similarly, all players witnessed a massive spike in sales. The GST decision came as a boost for customers, and companies should consider continuing with this momentum, making its models affordable,” said Sai Giridhar, president, Fada.
Even after a year, retail growth in automobiles has sustained beyond the initial festival surge. This has been led by two-wheelers and passenger vehicles (PVs), with the Fada data showing rural markets emerging as a key driver of the post-GST demand recovery.
Fada described January-August 2025 as relatively subdued and identified September as the turning-point when lower rates on small cars, two-wheelers up to 350cc, three-wheelers, and key commercial-vehicle categories improved affordability.
The immediate impact was amplified by deferred purchases and the festival season: Retail sales in October jumped 40.5 per cent year-on-year, with two-wheelers rising nearly 52 per cent to a record 3.15 million units and PVs reaching a record 557,000 units. Fada specifically attributed the two-wheeler surge to GST reduction, rural demand, and festival buying, while saying lower taxes
on small cars improved affordability for price-sensitive first-time buyers.
What is more significant for a one-year assessment is that the improvement did not disappear with the festival season. Sales of passenger vehicles (PVs) in November grew 19.7 per cent and those of commercial vehicles (CVs) 19.94 per cent despite an adverse festival-calendar base.
PV sales in December rose 26.64 per cent and those of CVs 24.60 per cent. By February this year, all the major vehicle categories were recording growth above 24 per cent: Tractors led at 36.35 per cent, followed by CVs at 28.89 per cent, PVs at 26.12 per cent and two-wheelers at 25.02 per cent.
Fada called it the best ever February for two-wheelers, three-wheelers, CVs, PVs, and tractors, and continued to identify improved affordability following GST 2.0 as one of the drivers. April provided another test after the festival and year-end effects had tapered off: Five of six categories recorded their best ever April, with overall retail up 12.94 per cent.
“The first year shows rate rationalisation can stimulate demand, but the durability of the impact will depend on whether the industry can preserve the affordability benefit despite rising input costs. The industry also continues to await clarity on the transitional treatment of the compensation cess, particularly the utilisation or refund of accumulated cess credit following GST 2.0, which has done away with the compensation cess,” said Sheena Sareen, partner, Deloitte India.
The rural dimension is perhaps the strongest underlying theme in Fada’s data. The association repeatedly describes the post-GST recovery as “Bharat-led”. In October, the rural PV growth rate was over three times its urban equivalent and the rural two-wheeler growth rate nearly twice the urban counterpart. The divergence subsequently remained visible in PVs: Rural PV retail grew 34.21 per cent in February against 21.12 per cent in urban markets and 20.40 per cent in April against 7.11 per cent in urban India.
