India has proposed reducing the Goods and Services Tax (GST) on small cars to 18% from the current 28%, as part of wide-ranging consumption tax cuts, a government source said on Monday.
The move, the most significant tax reduction announced by Prime Minister Narendra Modi since 2017, is expected to lift sales for leading automakers including Maruti Suzuki.
The government plans to reduce GST on small petrol and diesel cars to 18% from 28%, a source familiar with the discussions said.
GST on health and life insurance premiums could also be reduced to 5% or even zero from the current 18%, the source said. If approved, the tax cuts are likely to be announced by Diwali in October, the five-day Hindu festival that marks India’s biggest shopping season. The finance ministry did not respond to a request for comment. Sales of small cars—defined as petrol vehicles with engines under 1,200cc or diesel vehicles under 1,500cc and less than four metres in length—have slowed in recent years as consumers increasingly opt for larger, feature-rich SUVs.