Tax boost accelerates small SUV sales in India, while hatchbacks lag behind
GST 2.0 reforms have reshaped India’s car market, driving strong demand for small SUVs while hatchback sales remain sluggish.
The Indian passenger vehicles market has seen a notable change in consumer preferences following the recent GST rate revisions in September 2025, with buyers shifting towards compact SUVs while hatchbacks continue to trail despite minor gains from new entries in the segment.
Check Offers In the months leading up to GST 2.0, the market had remained largely subdued, with August 2025 wholesale figures reflecting uncertainties around the rate revisions and festive season delays. Sales volumes either slightly dipped or grew marginally, with most OEMs reporting mixed performances.
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The decline was more prominent in the hatchback and small cars category, which had been gradually conceding market share in recent years, falling from nearly 46% in FY2019 to approximately 23% in FY2025. During the first 10 months of 2025, small SUVs (sub-4m) accounted for more than 30% of all passenger vehicle sales, up from about 27% in the same period a year ago. In contrast, hatchbacks declined to 21.9% from 24% over the same period.
The GST effect on small cars and SUVs:
With GST rate cuts coming into effect from September 22, 2025, taxes on the majority of passenger vehicles in India dropped to 18% from the earlier 29–31% effective rate (including compensation cess). Larger and luxury cars observed a modest reduction from the effective 43–50% to a standard 40%.
The rate revision translated into lower sticker prices and greater affordability, with most automakers passing on the benefits to customers. SIAM data showed September 2025 sales climbing 4.4% year-on-year, aided by GST cuts prompting a surge in buyer interest ahead of the festive season.
Tarun Garg, COO at Hyundai Motor India Limited, said the SUV segment’s share in total passenger vehicle sales stood at 54.4% in the January-August period. Speaking at the launch of the new Hyundai Venue, he added that the figure rose to 57% October 2025, highlighting the rapid post-GST shift toward utility vehicles.
Manufacturers such as Hyundai Motor India and Tata Motors have reported tangible gains in their SUV portfolios since the GST changes. Garg attributed the growth not only to stronger demand but also to buyers opting for higher variants within similar budgets, aided by the lower prices. For Hyundai, SUVs accounted for 72.4% of total domestic sales in September 2025. Tata Motors posted record sales figures following the tax adjustment, leading the domestic market with 58,000 total sales. SUV-maker Mahindra & Mahindra’s domestic volumes grew by 3.5% from August 2025, with 56,200 total units sold.
(Also read: GST reform fuels Maruti Suzuki’s small car resurgence as hatchbacks outpace SUVs)
Will hatchbacks make a comeback?
While the broader trend points decisively toward an SUV dominance, there are signs of a mild rebound in the demand for hatchbacks. Maruti Suzuki noted an increase in bookings from first-time buyers and two-wheeler owners, an audience newly drawn to entry-level cars following the reduced rates. Company data shows that small-car sales volumes outpaced SUVs in October 2025, with compact-segment models, such as Swift, Baleno, and Dzire, rising to 76,143 units from 65,948 in the year before. Sales of entry-level models such as the Alto and S-Presso remained steady despite falling into a smaller sub-segment.
At present, the overall market share and momentum remain firmly with SUVs, particularly sub-compact models, which continue to dominate showroom traffic and account for a big chunk of new launches. The 2025 GST reforms were pivotal in amplifying the structural shift already underway in the market. With small SUVs now priced closer to premium hatchbacks, Indian buyers are now largely leaning towards higher-riding, feature-rich models.
The festive season sales uptick, combined with the GST effect on car prices, has thus reinforced an industry-wide narrative: India’s passenger vehicles market is being led by compact SUVs in 2025, while hatchbacks and small cars, once the backbone, are now navigating a slower recovery amid changes in buyer priorities.
