Impact of New GST Rates on Bike and Scooter Prices

Posted on: Sep 12, 2025 | 3 mins | Written by: HDFC ERGO Team

Impact of New GST Rates on Bike and Scooter Prices

Recently, the government approved revised GST (Goods and Services Tax) rates for automobiles, resulting in lower prices for entry-level two-wheelers. Earlier, bikes were taxed under a four-tier system of 5%, 12%, 18%, and 28%. This structure often created confusion, added compliance burden, and made pricing more complicated for automobile businesses.

To simplify the process, the government has now introduced a two-tier GST system, along with an extra tax on luxury and ‘sin’ items such as alcohol. The new GST rates will take effect on September 22, 2025.

In this blog, we will explore the impact of these changes on the automobile sector in detail.

Revised GST Structure for Automobiles: What is the News?

With the new tax structure, entry-level bikes with engines under 350cc will attract 18% GST, while larger bikes above 350cc will face a special tax rate of 40%. Electric vehicles, meanwhile, will continue to be taxed at 5%.

With this move, governments aim to ease the affordability pressure on middle-class buyers and beat the slow domestic demand environment. Additionally, the higher the tax burden on heavier vehicles, the more the government can rebalance the tax.

Relief for Middle-Class Buyers

Middle-class buyers stand to save anywhere between ₹5,000 and ₹12,000 on their purchases, depending on the engine, model, and variant of the bike. Currently, over 50% of vehicle owners in India do not have insurance for their automobiles. With reduced GST rates, comprehensive bike insurance is now more affordable, encouraging more riders to secure two-wheeler insurance in India.

However, the prices for third-party insurance will remain unchanged, as these are fixed by the Insurance Regulatory and Development Authority (IRDAI) and are uniform across engine capacities.

Why This Move Matters Now

The automobile industry has faced sluggish demand in recent quarters. The sales during April–June FY2026 highlighted the slowdown:

• In the April to June period, two-wheeler sales declined 6.2% to 4.67 million units.

• Sales of the top 10 scooters fell 6.31% year-on-year to 5.12 lakh units.

• Bike sales dropped 9% year-on-year to 2.90 million units.

• Overall, wholesale dispatches fell 5% year-on-year across verticals.

The GST revision is expected to provide a much-needed boost, especially during the festive season when consumer demand typically rises.

Industry Reactions

Industry leaders and analysts have widely welcomed the move. For instance, Dinesh Thapar, CFO of Bajaj Auto, stated, “Even though at 18% is higher than what comparable economies with large two-wheeler economies across the world are—fundamentally in the range of 8 to 15%—the reduction from 28% to 18% is absolutely the right direction of change.”

Conclusion

The revision of GST rates marks a turning point for India’s two wheeler market. By replacing the four-tier system with a simpler two-tier structure, the government has not only reduced compliance challenges for businesses but also made bikes and scooters more affordable for the middle class. With the potential to save big, buyers now have a stronger incentive to buy two wheelers, while reduced insurance costs further add to the benefits.

Though luxury models may see slight price hikes due to higher taxes, the move ultimately strengthens the industry and makes mobility more accessible across India.

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