The automobile industry in India has entered a new era with the introduction of GST 2.0, and one of the biggest beneficiaries of this reform is the car market. The government has restructured the taxation system to make it simpler, transparent, and more consumer-friendly. Among the major changes, the GST on cars has been overhauled—bringing relief for small car buyers while creating a clear structure for luxury and electric vehicles.
In this detailed article, we will break down the new GST rates on cars, their impact on prices, and what it means for consumers and the automobile industry.
What is GST on Cars?
Goods and Services Tax (GST) is a single indirect tax applied on goods and services across India. For cars, GST replaced the earlier complicated system of excise duty, VAT, road tax, and multiple cesses. However, cars were still subject to GST + Compensation Cess, making effective tax rates quite high—ranging from 29% for small cars to 50% for luxury SUVs.
With GST 2.0, the system has been streamlined. Now, GST on cars falls under only two primary slabs—18% and 40%—along with a separate 5% slab for electric vehicles. This is expected to boost demand in the entry-level segment and give clarity to car buyers and manufacturers.
New GST on Cars Rates (Effective September 22, 2025)
Here’s how the new GST structure applies to different categories of cars:
1. Small Cars & Commuter Vehicles
- Cars with length ≤ 4 meters
- Petrol engine ≤ 1200 cc, Diesel engine ≤ 1500 cc
- GST Rate: 18% (earlier ~29–31%)
This is a major reduction, making small cars 12–12.5% cheaper. For instance, a car priced at ₹6 lakh earlier will now be around ₹60,000 less expensive.
2. SUVs, Luxury Cars & Larger Hybrids
- Big-engine cars and high-end SUVs
- GST Rate: 40% (earlier ~50% including cess)
Though still high, the tax is lower compared to the previous combined structure. Luxury buyers will face higher tax compared to small cars, but slightly less than before.
3. Electric Vehicles (EVs)
- GST Rate: 5% (unchanged)
The government continues to encourage EV adoption by keeping GST minimal. EVs remain the most tax-efficient category under GST.
4. Auto Parts, Three-Wheelers & Buses
- Auto components and public transport vehicles
- GST Rate: 18% (unified rate)
This simplification removes earlier confusions where different components had varied GST percentages.
GST on Cars: Summary Table
| Vehicle Category | GST Rate (Post–Sept 22, 2025) |
|---|---|
| Small cars (≤ 4 m, ≤ 1200 cc petrol / ≤ 1500 cc diesel) | 18% |
| SUVs, luxury vehicles, large hybrids | 40% |
| Electric vehicles | 5% |
| Auto parts, 3-wheelers, buses | 18% |
How GST on Cars Impacts Prices
The new GST structure is a game-changer for small cars. With the effective tax rate dropping by almost 12%, the entry-level car market will see a revival. Models like Maruti Swift, Hyundai i10, Tata Tiago, and Renault Kwid are set to become more attractive for first-time buyers.
For luxury cars and SUVs, while the tax slab remains high at 40%, it is still lower than the previous 50% structure, giving a slight relief to premium car buyers.
EV buyers are the biggest winners, as the 5% GST on cars in the EV segment keeps them affordable and promotes eco-friendly mobility.
Why the Change Matters
- Boost for Small Car Market – India’s car market is dominated by small cars. The reduced GST makes them more affordable and increases demand.
- Encouragement for EVs – The 5% GST continues to push India toward greener transport solutions.
- Luxury Car Impact – Higher GST maintains revenue flow from premium segments while slightly reducing the burden compared to earlier cess structure.
- Simplification of Taxes – Instead of multiple slabs with GST + cess, now there are just two major slabs—making taxation transparent and easier to understand.
Expert Opinions
Industry experts believe that the new GST on cars could drive sales growth by 15–20% in the entry-level market. Automakers like Maruti Suzuki, Hyundai, Tata Motors, and Mahindra are expected to benefit the most.
Meanwhile, luxury brands like Mercedes-Benz, BMW, and Audi may see steady demand despite higher taxes, as their buyers are less price-sensitive.
Consumer Takeaways
- If you’re planning to buy a small car, this is the best time—prices have dropped significantly.
- Luxury car buyers will still pay higher GST, but less than the old structure.
- EV buyers continue to enjoy the lowest tax rate, making electric cars a smart future-ready choice.
- Car parts and maintenance will also become slightly more affordable due to a uniform 18% GST.
🙋 FAQs on GST on Cars
Q1. What is the GST on small cars in India?
The GST on small cars is 18%, reduced from the earlier effective tax of ~29–31%.
Q2. How much GST is charged on SUVs and luxury cars?
Luxury cars and SUVs are taxed at 40% GST under the new system.
Q3. What is the GST on electric cars in India?
Electric vehicles (EVs) attract only 5% GST.
Q4. Has GST on cars reduced in 2025?
Yes, especially for small cars, where the rate has dropped significantly, making them cheaper by around 12%.
Q5. Will car prices go down due to GST changes?
Yes. Entry-level cars will become much cheaper, while luxury cars may see a slight reduction compared to the earlier tax regime.
Q6. Is GST on hybrid cars the same as petrol/diesel cars?
Larger hybrids fall under the 40% GST slab, while smaller hybrids aligned with small car rules are taxed at 18%.
Q7. What is the GST on car spare parts?
Car parts and accessories are taxed at 18% GST.
Q8. Are second-hand cars affected by GST changes?
Yes, GST rules apply to pre-owned cars as well, though margins and valuation methods may differ.
Q9. What was the GST on cars before 2025?
Earlier, GST on cars included multiple slabs with additional cess, taking small cars to ~29% and luxury cars up to ~50%.
Q10. Do EVs still enjoy tax benefits under GST?
Yes, EVs remain at the lowest 5% GST slab.
Q11. When do the new GST on cars rates come into effect?
The new GST structure applies from September 22, 2025.
Q12. How much can I save on a ₹6 lakh small car now?
Around ₹60,000, thanks to the GST cut from ~29% to 18%.
Q13. Why did the government reduce GST on small cars?
To boost domestic demand and revive the slowing entry-level car market.
Q14. Does GST affect on-road price directly?
Yes, GST impacts the ex-showroom price, which directly influences the on-road cost.
Q15. Is there a chance of further GST reduction on cars?
Currently, the slabs are simplified, but future changes will depend on revenue and policy priorities.