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The Indian passenger vehicle market has witnessed a notable shift in consumer preferences following the recent GST rate revision in September 2025, with buyers shifting towards compact SUVs, while hatchbacks continue to decline despite modest gains from new entries in the segment.
In the months before GST 2.0, the market had been largely sluggish, reflecting uncertainties around rate revisions and the delay of the festive season. Sales volumes either declined slightly or increased marginally, with most OEMs reporting a mixed performance.
The decline was more prominent in the hatchback and small car category, which had been gradually losing market share in recent years, falling from about 46% in FY2019 to about 23% in FY2025. During the first 10 months of 2025, the share of small SUVs (sub-4M) in all passenger vehicle sales was more than 30%, up from about 27% in the same period a year ago. In contrast, hatchback sales declined from 24% to 21.9% in the same period.
Impact of GST on small cars and SUVs:
With the GST rate cut coming into effect from September 22, 2025, the tax on most passenger vehicles in India will be reduced to 18% from the earlier 29-31% effective rate (including compensation cess). Large and luxury cars saw a slight reduction from the effective 43–50% to the standard 40%.
The rate revisions led to lower sticker prices and greater affordability, a benefit most automakers are passing on to customers. SIAM data showed sales grew 4.4% year-on-year in September 2025, with the GST cut boosting interest from buyers ahead of the festive season.
Hyundai Motor India Ltd COO Tarun Garg said the SUV segment accounted for 54.4% of total passenger vehicle sales in the January-August period. Speaking at the launch of the new Hyundai Venue, he said this figure will increase to 57% in October 2025, reflecting the rapid shift towards utility vehicles post-GST.
Manufacturers like Hyundai Motor India and Tata Motors have reported solid gains in their SUV portfolios since the GST transition. Garg attributed this growth not only to strong demand but also to buyers choosing higher variants within the same budget due to lower prices. For Hyundai, SUVs will account for 72.4% of total domestic sales in September 2025. Tata Motors posted record sales figures after tax adjustments, leading the domestic market with total sales of 58,000. SUV maker Mahindra & Mahindra’s domestic sales grew 3.5% from August 2025, with a total of 56,200 units sold.
(Also read: GST reform revives Maruti Suzuki small cars as hatchbacks overtake SUVs)
Will hatchbacks make a comeback?
While the broader trend points decisively towards SUV dominance, there are signs of a mild bounce back in demand for hatchbacks. Maruti Suzuki has seen a surge in bookings from first-time buyers and two-wheeler owners, after lower rates attracted a new audience towards the entry-level cars. Company data shows that the sales volume of small cars overtook SUVs in October 2025 with compact-segment models like Swift, Baleno and Dezire rising to 76,143 units from 65,948 a year ago. Despite falling into a smaller sub-segment, sales of entry-level models like Alto and S-Presso remained stagnant.
Currently, the overall market share and momentum remains firmly with SUVs, especially sub-compact models, dominating showroom traffic and accounting for a large portion of new launches. The 2025 GST reforms were important in accelerating the structural changes already underway in the market. With small SUVs now priced closer to premium hatchbacks, Indian buyers are now largely leaning towards high-riding, feature-rich models.
The surge in festive season sales coupled with the GST impact on car prices has thus reinforced the industry-wide narrative: India’s passenger vehicle market is being led by compact SUVs in 2025, while hatchbacks and small cars, which were once the backbone, are now experiencing a slow recovery amid changes in buyer preferences.
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