The GST reform announcement by the Centre was hailed by the industry, businesses and common people in hopes of lower taxes on everyday essentials as well as electronics, automobiles, and other segments.
But, with the festive season approaching in India, marked by festivals like Dussehra and Diwali, the automobile industry awaits clarity on the new GST rates so that its vehicles segment, especially the luxury car sector, regains momentum in the ongoing quarter.
On September 3-4, the GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet to discuss moving the country’s current four-tier tax structure to a simpler, two-slab arrangement comprising only the 5 per cent and 18 per cent tax slabs.
While consumer interest in the vehicles sector remains strong, prospective buyers have adopted a wait-and-watch approach while the government announces the new tax rate norms, which has delayed decision-making and impacted new vehicle sales, noted Hardeep Singh Brar, CEO and President, BMW’s India Group.
"Expediting clarity on GST rates is essential to get back to speed and ensure the auto sector's contribution to economic growth during this quarter is robust," Brar said, adding that he hoped the GST on passenger electric cars will remain at 5 per cent to push sustainability.
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“An adverse impact from GST rates can derail the vision of high electric adoption and local production in India,” he added and said the company is geared to introduce several model trims during the festival season.
Audi is also slated to enter the festive season with an “exciting product portfolio and strong customer engagement”, said its India Head, Balbir Singh Dhillon, who expects sustained growth throughout the festival period.
"Post the GST clarification expected in the first week of September, we expect consumer confidence to grow and demand to increase across our product range – particularly for our SUVs, which continue to attract customers," Dhillon noted.
There has been a shift in buying priorities of young Indians, with the luxury car segment outpacing the passenger vehicle market between FY22 and FY25.
“It was driven by strong aspirational demand across diverse demographics, including younger and first-time buyers,” noted Santosh Iyer, CEO and MD, Mercedes-Benz India.
While the company has plans to roll out an integrated campaign next week that addresses customers' aspirations, Iyer said sales in the festive season are expected to be driven by positive customer sentiment.
However, carmakers are being cautiously optimistic, since trade headwinds coming from high US tariffs on Indian products are likely to dampen business to an extent.
“The sales during the festive season this year is expected to grow only in the mid-single digits,” said Jitin Makkar, Icra Senior Vice President & Group Head, Corporate Ratings, while commenting on the overall business scenario in the luxury car segment.
Already, in the first half of CY2025, growth in luxury car sales has been tepid, weighed down by geopolitical tensions and stock market volatility, he said, and added that “a potential GST rate cut on smaller cars could stimulate demand in the mass-market segment, while the luxury segment may face a more subdued environment”.
"Although festive season buying may lift volumes sequentially, overall growth for the full year is likely to remain muted," Makkar said.
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