GST rate cut brings festive cheer, but cess cloud looms over dealers

By: Prashant Singh
| Updated on: 05 Sept 2025, 22:09 pm Share via: India’s auto dealers welcome GST 2.0’s rate cuts, expecting demand revival during the festive season. FADA seeks clarity on cess credits, warning overall benefits may not reach buyers. …Read More File photo of a Maruti Suzuki dealership View Personalised Offers on Check Offers Following the GST Council’s recent overhaul that reduces GST on small cars, two-wheelers and abolishes the cess altogether, India’s auto dealerships are staring at a potential financial pinch. Their outcry stems from the compensation cess already paid on vehicle stocks for the festive season, which now threatens to go to waste. With no clear pathway to recover these credits, retailers warn of a looming strain on working capital just as demand gears up. Speaking to HT Auto, FADA (Federation of Automobile Dealers Associations) Vice President Sai Giridhar mentioned that dealers currently have large amounts of compensation cess in their credit ledgers but since there’s no transition pathway after the GST changes, this credit could lapse, causing them a permanent financial loss and creating a big working capital crunch. “The dealers have discharged this cess on inward supply with a legitimate expectation of utilization, and today any denial of that amount—since it forms the credit balance of the dealers’ stock—would mean that the benefit of the lower GST may not actually be passed on to vehicle costs, because that cost has to be recovered in some way or another,” said Giridhar. He further indicated that dealers are requesting clarity on compensation cess, asking the government to allow unused balances (as of September 21) to be transferred to IGST or CGST so they can use it to settle GST liabilities. “The GST framework is designed for seamless flow of credit, and lapsing of cess balances would contradict this fundamental principle,” Giridhar stressed. Starting September 22, buyers of small cars, commuter motorcycles (up to 350cc), three-wheelers, and even commercial vehicles like buses, trucks, and ambulances will benefit from lower taxes. The GST rate on these categories is being reduced to 18% from the existing 28%, while the additional cess—previously levied at 1% to 22% depending on the type of passenger vehicle—will be scrapped altogether. Retailers Expect Demand To Bounce Back Post-GST ReformAutomobile dealers across India told HT Auto that there is an overall ‘positive’ sentiment among buyers post the GST 2.0 announcement. Maruti Suzuki Arena dealers in Kolkata said buyer turnout hasn’t picked up yet since the GST cut was just announced, but sentiment is expected to turn positive. Sales are slightly down as customers are booking cars but delaying billing until after September 22. The Arena (Lee Road) outlet is facing an inventory glut of 150–200 cars, with buyers holding off purchases since news of the tax reduction first emerged. “Consumers are yet to show up in larger numbers, as the announcement just took place. We are expecting positive sentiment,” said a sales representative at the Arena dealership near Lee Road in Kolkata. Talking to Honda dealerships, HT Auto found that both customers and sellers are confused about final pricing after the GST cut. Sales have dropped sharply since mid-August as buyers adopted a wait-and-watch approach, leading to a noticable inventory glut. In the past two days, queries have risen, but uncertainty over new prices is preventing clear communication with customers. “Customers started holding up since mid-August and in last two days, queries have increased. However, we are yet to have clarity on the new pricing, so we are not being able to help them much,” said a Honda Cars dealership representative. Commuter Bike Segment Set To See Major BoostTwo-wheeler dealers in Delhi say GST 2.0 has arrived at the right moment, offering significant relief to buyers, especially in the 100cc–160cc motorcycle segment, which drives most of their sales. “The sales are going to boosted a lot. Since most customers are of the 100cc-160cc segment, they will be able to get a lot of benefit from it. Along with the festive season it will also help in boosting the sales. As compared to before, we are expecting a boost of 10-12% in sales,” said Karan, Manager at a Bajaj Auto dealership in Okhla. “Many customers are planning to buy on Navratri, combining the auspicious timing with lower prices,” he added. Inventory levels are healthy and expected to improve further. While premium bike buyers remain largely unaffected by price changes, mass-market customers are holding back purchases until the GST cut takes effect on September 22, hinted two-wheeler dealerships in Delhi suggesting premium bike buyers have continued to buy vehicles. Get insights into Upcoming Cars In India, Electric Vehicles, Upcoming Bikes in India and cutting-edge technology transforming the automotive landscape. First Published Date: 05 Sept 2025, 21:50 pm IST
Source: hindustantimes.com