A year after GST rationalisation made luxury cars cheaper by around 5-7 percent, successive price increases by Mercedes-Benz, BMW and Audi have substantially eroded those savings, with some models now costing as much as, or more than, they did before the tax reduction.
The Mercedes-Benz GLA 200, for instance, was priced at Rs 51.5 lakh before the GST changes came into effect on September 22, 2025. Its price subsequently fell to Rs 49.7 lakh but has since climbed to Rs 51.8 lakh, exceeding its pre-GST price by Rs 30,000.
Similarly, the BMW X3 xDrive20d M Sport, whose price dropped from Rs 78.3 lakh to Rs 73.1 lakh following the tax reduction, now costs Rs 78.2 lakh, almost entirely reversing the initial benefit of Rs 5.2 lakh.
The reversal comes as luxury carmakers grapple with a weakening rupee against the euro, rising logistics expenses and higher operating costs. While the lower GST rate remains in place, subsequent manufacturer-led price revisions have reduced the effective savings available to buyers.
Audi India has increased prices twice this year, taking the cumulative increase to around 4 percent, according to head of Audi India. The company had reduced prices by approximately 6-7 percent following the GST rationalisation.
“We had to take multiple price increases due to the forex fluctuations. The fall in the rupee against the euro last year was 19% and this year it is already 6-7%. All of this is negating the positive impact we had on GST,” he told Moneycontrol in an exclusive interaction.
“We have taken two increases this year,” he added.
Why luxury cars are more vulnerable
Luxury carmakers are particularly exposed to currency fluctuations because of their dependence on imported vehicles and components. Unlike mass-market manufacturers, which have developed extensive domestic supplier networks, luxury brands operate at relatively smaller volumes, making deeper localisation commercially challenging.
Even models assembled in India often depend on imported completely knocked-down (CKD) kits, engines, transmissions, electronics and other specialised components. For German manufacturers such as Mercedes-Benz, BMW and Audi, a significant part of this sourcing is linked to Europe.
Consequently, a weaker rupee against the euro increases procurement and manufacturing costs even when the underlying price of the imported component remains unchanged.
The impact is also greater in absolute terms because luxury vehicles typically carry higher component and import values. Manufacturers must either absorb these additional costs, putting pressure on margins, or pass them on to customers through price revisions.
This explains why the GST benefit has diminished so quickly. The tax reduction provided a one-time saving, while currency depreciation and higher operating costs have continued to affect manufacturers throughout the year.
Mercedes-Benz India, the country’s largest luxury carmaker, has raised prices twice in 2026 and is preparing another increase from October 1.
The company increased prices by 2 percent in January and another 2 percent in April. It has announced a further 2 percent revision from October, citing persistent cost pressures.
“We have absorbed rising costs over the past months to shield our customers from immediate price pressures. With these pressures continuing, this measured adjustment has become necessary,” Mercedes-Benz India said.
BMW Group India has similarly undertaken price revisions during the year, citing currency depreciation and escalating logistics costs.
The company increased prices by up to 2 percent from April 1 and implemented another 2 percent increase from July 1. It has indicated that further revisions could follow if cost pressures persist.
“To protect our premium standards against macroeconomic headwinds – specifically rupee depreciation and escalating logistics costs, price hikes have been undertaken in 2026,” BMW Group India President and CEO said.
BMW’s price increases during 2026 have ranged between 5 percent and 7 percent, depending on the model and revision.
The impact of these increases varies across brands and individual variants. However, the GLA and X3 illustrate how a substantial tax-led reduction can be absorbed by successive price revisions within a relatively short period.
Based on the pre- and post-GST prices announced for six Mercedes-Benz variants last year, the average initial reduction was approximately 6.1 percent.
Brar has previously indicated that the rupee depreciated by around 7 percent against the euro since the beginning of 2026, adding pressure on pricing. Mercedes-Benz has also cited the unfavourable euro-rupee exchange rate, alongside higher input and logistics expenses, as reasons for its latest revision.
Growth loses momentum
The erosion of the GST benefit comes as India’s luxury car market faces a slowdown after several years of post-pandemic expansion.
The segment grew by approximately 4 percent year-on-year during the first half of 2026, with industry executives expecting the full-year market to remain largely flat or register single-digit growth.
Dhillon expects the luxury car segment to expand by 8-10 percent this year but said consumer sentiment remains a concern.
“Our segment draws a lot of emotion, sentiments matter a lot. The stock market has been moving sideways for 18 months to two years and then we have the West Asia crisis. So, in general, this is not giving a positive sentiment,” he said.
The GST rationalisation had initially provided a price-led incentive for buyers, particularly in a segment where even a modest percentage reduction can translate into savings of several lakh rupees.
However, the subsequent price increases underline how currency movements can quickly offset the consumer benefit of lower taxation in an import-dependent industry.
With Mercedes-Benz preparing another increase in October and BMW indicating that further revisions may be necessary, prices could face additional upward pressure.
For luxury car buyers, the tax reduction has not disappeared. But a year after it came into effect, much of the initial saving has been absorbed by higher vehicle prices, leaving some models back at or above their pre-GST levels.
