A year after GST 2.0 reduced the effective tax rate on small cars from 29% to 18%, model-wise sales data show that even lower taxation has failed to spark a revival in India’s entry-level hatchback segment.
GST 2.0 became effective on September 22, 2025, and a year later, the combined wholesales of seven entry hatchbacks whose ex-showroom prices start under Rs 5 lakh (Alto, Spresso, Wagon R, Celerio, Kwid, C3, and Tiago) grew by 17.1% to 473,484 units, as compared to 404,380 units in the preceding 12-month period. While a 17% growth appears good in isolation, it lags behind the overall passenger vehicle market and is vastly overshadowed by the explosive growth recorded across the SUV segment.
The contrast is striking. Sub-4-metre SUVs (priced in the Rs 7-14 lakh range) surged 21.3% over the same 12-month period, expanding from 1,339,995 units to 1,625,984 units. However, midsize SUVs (priced in the Rs 11-22 lakh range) grew the strongest, and jumped 36.8% from 777,999 units to 1,064,250 units.
What makes this difference starker is the taxation landscape. Under GST 2.0, all entry-level hatchbacks benefit from the lower 18% slab, some sub-4-metre SUVs also attract 18% slab (provided engine capacity is under 1200cc for petrol and 1500cc for diesel), but every midsize SUV attracts a steep 40% GST rate. This implies that despite carrying more than double the tax burden, midsize SUVs expanded at double the rate of tax-benefited entry hatchbacks.
Automotive analysts and economists told FE that two factors explain why SUVs decoupled from hatchbacks over the past year: mostly due to new launches, as well as electrification.
The entry hatchback segment has also suffered a product launch drought, and has seen only one major update in the last couple of years (the new Tata Tiago). On the other hand, the SUV space was inundated with launches and upgrades, including the new Tata Punch ICE (January 2026), Punch EV (February 2026), Tata Sierra (January 2026), and the updated Kia Seltos (January 2026), among others.
In addition, electric vehicles (EVs) attract the lowest 5% tax under GST 2.0, and barring the new Tiago EV that was launched in May 2026, all EV launches and updates are happening in the SUV segment. In fact, models like the Punch EV and Nexon EV contributed a lot to SUV growth.
But the post-GST 2.0 growth numbers only confirm that the decade-long decline of the entry hatchback isn’t a tax problem, but a fundamental change in consumer behaviour and purchasing power.
“We have a very interesting situation where sales of smaller cars are growing at a slow rate compared to mid and larger vehicles,” chief economist at Bank of Baroda, told FE. “One reason is a definite preference shift towards larger vehicles, which reflects overall purchasing power. People in lower-income groups normally go for entry-level cars, whereas larger vehicles are bought by higher-income individuals who also have better access to credit. It comes down to affordability and changing consumer preference.”
While GST 2.0 succeeded in expanding the overall market size, one year of data comprehensively proves that the classic sub-`5 lakh Indian hatchback is no longer the country’s default mobility option, and the country is no longer going to such cars despite lower taxes and affordability.
Source from: https://www.financialexpress.com/auto/car-news/even-gst-2-0-failed-to-fuel-entry-hatchback-revival/4348121/
