The automobile industry in India is a vast business which is said to be the third biggest market producing a large number of cars and bikes annually. The reason for this is the population in the nation which seeks for dynamic technology and new models. This industry has the potential to become the major economic contributor.

India is a global major in the two-wheeler industry producing scooters, mopeds, and motorcycles principally of engine capacities below 200cc. It has also been the largest tractor manufacturer, the 5th largest commercial vehicle manufacturer and the 13th largest producer of passenger cars in the world. The growth has been recognized by the Government of India and hence is currently working on the Automotive Mission Plan 2026 to set targets for the industry. The auto industry is likely to gain from the implementation of the GST as it is expected to reduce logistics costs by removing trade hurdles which lead to competitive manufacturing. GST has been introduced to unify 17 different taxes like VAT, sales tax, road tax, motor vehicle tax, and registration duty and so on. These indirect taxes previously resulted in cascading effect and increased the price of the goods and services. Most of the car manufacturers are located in few of the states in India. According to estimates, 80% of these cars are sold to dealers in other states from the state of manufacture.

In the old tax system, the tax was levied on the manufacturing of vehicles and on the sale of the vehicle in an outer state of manufacture, leading to double taxation whereas in the GST system the tax is implemented only on the value added at every stage of production. This will make sure that there is no tax on tax paid on the inputs that are used in manufacturing goods. For example, the 2% CST will be integrated as IGST which is totally credible by the dealer when he sells the car in other states, and this will be the same under the interstate procurements also.