India Plans Major GST Cuts on Small Cars, Insurance to Boost Demand

India is considering slashing the Goods and Services Tax (GST) on small cars to 18% from the current 28% as part of the biggest consumption tax overhaul since the nationwide system was introduced in 2017, a government source said. The move, expected to be announced by Diwali in October, is aimed at reviving demand in the small car segment, which has lost ground to sport utility vehicles (SUVs) in recent years.

The proposal also includes lowering GST on health and life insurance premiums to as low as 5% or even zero from the current 18%, the source said. If approved, the cuts are expected to benefit major automakers like Maruti Suzuki, Hyundai Motor India, and Tata Motors, as well as boost insurance adoption. Shares of auto and insurance companies surged between 2% and 8% in morning trade following the report.

Under the revamp, India may simplify the tax system into two slabs — 5% and 18% — replacing the current four-tier structure. Cars with higher engine capacity, which now attract up to 50% total tax, may come under a new 40% special rate. The GST Council, chaired by the federal finance minister and state representatives, is expected to finalize the decision by October for a nationwide rollout.

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