Tax on small cars slashed to 18%, insurance premiums capped at 5%; reforms hailed as biggest overhaul since 2017
New Delhi, August 18, 2025
In a landmark economic reform aimed at boosting consumer spending and reviving struggling sectors, the Indian government on Monday announced extensive Goods and Services Tax (GST) cuts for automobile and insurance sectors. Under the proposed changes, GST on compact cars will be reduced from 28% to 18%, and taxes on insurance premiums are to be limited to a cap of just 5% of the total premium, down from the current 18%. Officials said the measures represent the most significant overhaul of the GST regime since its introduction in 2017.
The announcement triggered a strong rally in financial markets. Maruti Suzuki shares jumped 9 per cent, while insurance majors LIC and SBI Life gained as much as 5 per cent. The Nifty index rose 1.3%, marking its best single-day performance in three months.
Industry experts believe the timing is crucial. Small car sales, once half of India’s auto market, have declined sharply to just 33% as buyers shift toward SUVs. Similarly, India’s insurance penetration remains below 4% of GDP, far behind global averages.
“The dual benefit of these measures is extraordinary,” said Arvind Singhal, Chairman of retail consultancy Technopak. “They will immediately lower consumer costs while unlocking long-term growth potential in two critical sectors.”
The reforms, once approved by the GST Council, are expected to take effect in October. To maintain revenue neutrality, the government plans to introduce a steep 40% “sin tax” on luxury items and tobacco products
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