India's car sales crank up as GST gains & income twist top price hikes

New Delhi: Car prices have risen by about 3% over the past year amid inflationary pressures, but an almost three times faster growth in household disposable incomes has helped preserve the affordability gains from GST rate cuts and push demand, a top industry executive said.

"Customers' ability to buy cars has gone up (since GST 2.0 tax reforms in September 2025)," Shailesh Chandra, managing director of Tata Motors Passenger Vehicles, said. "Automakers have only partially passed on the increase in commodity costs to buyers."

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While almost all carmakers have undertaken 3-4 price hikes this year to partially offset the impact of the sharp rise in input costs triggered by the West Asia crisis, cumulative increases by any individual carmaker remained below 5%, Chandra said.

This meant the affordability gains from the GST cuts on passenger vehicles remained largely intact. GST on cars below four metres was cut to 18% from 28%, while the effective rate on larger vehicles was reduced to 40% from 43-50%, including cess.

"On the other hand, disposable income has gone up, further improving affordability," Chandra added.

As per government data, gross national disposable income (GNDI) increased by 9.1% in FY26, after rising 10.2% in FY25 and 10.9% in FY24.

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The demand recovery has been particularly visible in vehicles attracting the lower 18% GST rate. During April-August, sales of passenger vehicles in this category rose 29% year-on-year to 1.24 million units, according to industry data.

The category includes models such as the Maruti Alto and WagonR, Tata Punch and Mahindra Bolero.

Sales of passenger vehicles in the 40% tax bracket such as Hyundai Creta and Kia Carens grew by about 21% during the same period.

Festive Outlook, SUV Focus

Heading into the festive season, Tata Motors, the country's second-largest carmaker, expects to build on the strong momentum of the second half of FY26 and deliver profitable growth. The company expects the overall industry to grow 10% during October-March and said it is confident of outpacing the industry, helped by a strong new-product pipeline and its multi-powertrain strategy.

Chandra admitted consumer preference remains skewed towards SUVs but there has been a revival in demand in other categories as well after the GST rationalisation. Hatchbacks and sedans - segments that had been losing ground due to earlier affordability pressures - have seen significant volume growth since then even as their overall market share has remained largely stable.

Sales of compact sedans increased to 350,000 units last fiscal year from about 270,000 units in FY25. Compact sedans account for more than 85% of all sedans sold in the country. Hatchbacks and sedans together comprise 29% of total car sales in the local market, as per industry estimates. The share of hatchbacks has remained almost flat at about 20-21%.

One of the reasons for comparatively lower demand for sedans could be a lack of options, according to Chandra. "There are customers who may be looking for a sedan but may have been compelled to opt for an SUV because of limited numbers of options," he said, adding that Tata Motors plans to "give a wide range of choice to customers" across segments.