Domestic sales totalled 81,038 cars in July, compared with 63,104 in the same month a year earlier, the Society of Indian Automobile Manufacturers said in a statement.
Car sales for April-July, the first four months of the financial year to March 2007, were up a quarter at 324,671 from 260,025 in the same period last year, it said.
The government slashed excise, or factory tax, on small cars to 16 percent from nearly 25 percent in February's annual budget. The cut, effective from April, was aimed at boosting car sales and to make India a regional hub for small car production.
Makers also offered discounts of between 1.5 percent and 10 percent to push sales in a market where only eight out of 1,000 Indians own a car, compared with 16 in China and 500 in developed markets.
However some manufacturers, including top car maker Maruti Udyog Ltd. and leading bike maker Hero Honda Motors Ltd. have marginally raised vehicle prices in the cut-throat market from August, to offset an increase in the cost of raw materials such as steel, aluminum and rubber.
Sales of commercial vehicles -- trucks and buses -- rose to 32,647 units in the past month, compared with 23,827 units in July last year. April-July sales stood at 128,516 versus 91,302.
Motorcycle sales were up at 453,152 units in July from 399,778. Sales for the four-month period were 2,061,972 versus 1,710,266.
India, Asia's third-largest economy and the world's largest bike market after China, rolls out nearly 6 million motorcycles a year.