The government’s recent decision to slash the Goods and Services Tax (GST) on small cars is set to shake up India’s passenger vehicle market. While hatchbacks are expected to benefit, industry experts believe micro SUVs will emerge as the bigger winners.
The GST on small cars has been reduced to 18% from the earlier 28%, with an additional 1% cess on petrol models and 3% on diesel models. This category covers vehicles under four metres in length with petrol engines below 1,200cc or diesel engines below 1,500cc. Models such as Maruti’s Alto, Celerio, Renault Kwid, and Hyundai Nios fall under this bracket, alongside micro SUVs like Tata Punch, Maruti Fronx, Hyundai Exter, and compact sedans like the Maruti Dzire and Honda Amaze.
Market watchers note that consumer preferences are already tilted towards SUVs, thanks to their higher ground clearance, SUV styling, and feature-rich packages. With prices now nearly at par with hatchbacks, micro SUVs are expected to take the lead. Hyundai India COO Tarun Garg said, “People want SUV styling, higher ground clearance, and features like sunroof and six airbags. The demand for smaller SUVs will only peak further after GST cuts.”
Sales data support this trend: hatchbacks’ market share has declined from 50% in 2015 to 22% in 2025, while SUVs’ share has soared from 13.5% to 54% in the same period. Analysts expect strong demand for models like Tata Punch and Maruti Fronx post-GST rejig.
However, Maruti Suzuki maintains hatchbacks will also benefit. “We believe the mini and hatchback segment cars will grow by 10% after the GST cuts, reversing the recent decline,” said Partho Banerjee, Senior Executive Officer, Marketing & Sales at Maruti Suzuki.
