The Indian government is considering a major cut in goods and services tax (GST) on small cars and insurance premiums as part of a sweeping tax reform plan. The proposal suggests reducing GST on small petrol and diesel cars to 18% from the current 28%, while health and life insurance premiums could be taxed at just 5% or even zero.
The move is aimed at boosting affordability, increasing consumption, and making essential as well as aspirational goods more accessible to a wider population. Auto and insurance companies are expected to benefit significantly once the reforms are approved, likely from October.
Indian stock markets responded positively on Monday, with benchmark indices rising and auto stocks leading the rally. Analysts say the tax cut would be a big win for Maruti Suzuki, which has lost market share in recent years as buyers shifted to SUVs. Small cars, once nearly half of total passenger vehicle sales, now account for only a third of the 4.3 million cars sold annually.
The government’s new GST structure proposes just two tax rates—5% and 18%—while retaining a higher 40% slab for a handful of items such as tobacco and luxury products. Final approval will rest with the GST Council, expected to meet in October.
If implemented, the reform will not only support the auto industry but also improve India’s low insurance penetration, which remains under 4% of GDP.