GST on Cars in India 2025: New Tax Rates, Calculation and Impact

Explore new GST on cars in India. Reform 2.0 cuts taxes, removes cess and makes pricing transparent for buyers and businesses.
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GST on cars
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3 min
10 September 2025

The Goods and Services Tax (GST) revolutionized automobile taxation in India by consolidating multiple taxes like excise duty and VAT into a single system. Launched in 2017, GST simplified compliance and pricing, benefiting both manufacturers and consumers. With the introduction of GST Reform 2.0 in September 2025, the government has further refined the tax structure—reducing the rate for small cars to 18%, imposing 40% on other vehicles, and maintaining a concessional 5% rate for electric vehicles. The removal of the cess has made pricing more transparent and vehicle ownership more affordable. This article covers the updated rates, their impact on the industry, and the advantages for buyers, providing key insights for both consumers and automotive professionals.

What is GST on cars?

Goods and Services Tax (GST) is a unified indirect tax applied to the manufacture, sale, and consumption of goods and services across India. In the automobile sector, GST replaced the earlier complex system of multiple taxes such as excise duty, VAT, and various state-level levies. Launched on July 1, 2017, GST aimed to simplify and unify the taxation process for vehicles. With the introduction of GST Reform 2.0 on September 3, 2025, the government has further streamlined the tax structure for cars to enhance affordability and improve tax administration.

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New GST rates on cars in India

GST Reform 2.0 has streamlined the tax structure for most cars into two primary rates: 18% for small cars and 40% for all other vehicles, while maintaining a low rate for electric vehicles (EVs). The additional cess has been completely removed for these categories, simplifying tax calculations and lowering the overall tax burden on consumers.

Type of Vehicle

Previous GST + Cess

Total Tax Rate (Old)

New GST Rate (Effective Sept 22, 2025)

Total Tax Rate (New)

Small Cars (Petrol <1200cc & length <4m)

28% GST + 1% Cess

29%

18%

18%

Small Cars (Diesel <1500cc & length <4m)

28% GST + 3% Cess

31%

18%

18%

Mid-sized Cars (<1500cc & length >4m)

28% GST + 17% Cess

45%

40%

40%

Luxury Cars (>1500cc & length >4m)

28% GST + 20% Cess

48%

40%

40%

SUVs (>1500cc, length >4m, ground clearance >170mm)

28% GST + 22% Cess

50%

40%

40%

Hybrid Cars (Engine >1200cc Petrol, >1500cc Diesel)

28% GST + 15% Cess

43%

40%

40%

Electric Vehicles

5% GST + 0% Cess

5%

5%

5%

Ambulances & 3-Wheelers

28% GST + 0% Cess

28%

18%

18%


To explore the reforms that GST introduced, check out the features of GST.

How does GST impact car prices, its benefits, issues to be resolved

GST impacts car prices directly by adding a tax to the vehicle’s price. In 2025, GST rates on small petrol and diesel cars were reduced from 28% to 18%, lowering the price for buyers. This means you pay less when buying smaller, everyday cars. Electric vehicles enjoy a low GST of only 5%, encouraging cleaner choices. Even things like insurance and road tax, which are based on the car's value, become cheaper because the GST cut lowers the car’s price.

The benefits to you include more affordable car prices and smaller monthly EMIs if you take a car loan. However, bigger and luxury cars still face a high 40% GST, making them expensive for many. Also, imported cars have extra taxes. These areas need improvement for fairer pricing. Overall, GST helps make car ownership easier and more affordable in India.

Impact of GST on the cars industry

The implementation of GST has brought a significant transformation to the automobile industry, made even more efficient by the recent GST reforms. The complex, cascading tax system of the past has been replaced with a simpler structure. The elimination of compensation cess on most vehicles and the rationalisation of tax rates are expected to lower prices, directly benefiting consumers.

  • Small Cars: The reduction of total tax from 29-31% to a uniform 18% is a major development. This is likely to drive higher demand in the entry-level segment, making cars more affordable for a broader audience.
  • Luxury Vehicles and SUVs: Although the headline GST rate has increased to 40% from 28%, the removal of the substantial compensation cess (up to 22%) effectively reduces the overall tax burden. This also simplifies the tax framework and resolves classification issues.
  • Supply Chain Efficiency: The unified GST regime continues to enhance logistics and supply chain operations by removing state-level taxes and checkpoints, thereby cutting transit times and lowering costs for manufacturers and dealers.
  • Promotion of EVs: The GST rate on electric vehicles remains steady at a low 5%, providing a strong incentive to encourage the adoption of cleaner, environmentally friendly transportation options.

GST calculation on cars after the new tax structure

Calculating GST on cars has become easier under the new system with the removal of the cess component.
Formula:
Total Tax = Ex-showroom Price × GST Rate

For example, if the ex-showroom price of a small diesel car (under 1500cc) is Rs. 6,00,000 and the GST rate is 18%, then:
Total Tax = Rs. 6,00,000 × 18% = Rs. 1,08,000
Final Price = Rs. 6,00,000 + Rs. 1,08,000 = Rs. 7,08,000

This reflects a notable price reduction compared to the earlier tax structure.

Using a GST calculator can simplify this process, providing an accurate and quick way to determine the final cost of a vehicle after applying GST.

Exemptions for GST on car after reform 2.0

GST Reform 2.0 has maintained the existing GST exemptions for certain vehicle categories:

  • Electric Vehicles (EVs): Continue to benefit from a concessional GST rate of 5% to encourage clean energy and sustainability.
  • Ambulances: The tax rate has been lowered from 28% to 18%, acknowledging their critical role in healthcare.
  • Vehicles for the Physically Challenged: These vehicles remain exempt from GST, with government-defined criteria to ensure mobility aids are more affordable.

Conclusion

GST 2.0 has brought a major transformation to automobile taxation in India. By streamlining the tax structure into simpler slabs and eliminating the complex cess, the government has enhanced transparency and predictability. These changes are set to make small cars more affordable, stimulate demand in the mass market, and sustain growth in the electric vehicle sector. For businesses, especially those looking at financing options, understanding GST’s effect on pricing and costs is crucial. In such scenarios, opting for a business loan can be a practical way to manage cash flow and invest in new vehicles. As the unified GST framework continues to develop, it is shaping the future of India’s automobile industry.

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Frequently asked questions

How much is GST on cars?

The GST on cars in India varies by vehicle type. Small petrol cars (<1200cc, <4m) have a 29% tax, small diesel cars (<1500cc, <4m) have a 31% tax, mid-sized cars have a 43% tax, luxury cars have a 48% tax, SUVs have a 50% tax, and electric vehicles have a 5% tax.

What are the several categories of cars in India that are subject to GST?

In India, cars subject to GST fall into several categories: small cars (petrol and diesel, under 4 metres), mid-sized cars (over 4 metres), luxury cars (over 4 metres, high engine capacity), SUVs (over 4 metres, high ground clearance), electric vehicles, hybrid cars, and ambulances. Each category attracts different GST rates and additional cess.

What is the lowest GST rate applicable to automobiles?

The lowest GST rate applicable to automobiles in India is 5%, which is levied on electric vehicles (EVs). This reduced rate is part of the government's initiative to promote environmentally friendly transportation options and support the adoption of sustainable automotive technologies. Electric vehicles benefit from this concessional tax rate to encourage their use.

Can I claim GST on my car?

Yes, you can claim GST on your car if it is used for business purposes. The vehicle must be registered in the company's name, and the input tax credit (ITC) can be claimed on the GST paid during purchase. However, personal use of the car disqualifies it from claiming GST credits.

What is the GST rate for SUVs?

The GST rate for SUVs above 1200 cc petrol or 1500 cc diesel, and luxury SUVs, is 40%. Smaller SUVs with engine and length below limits attract 18% GST.

How is GST calculated on cars?

GST on cars is calculated as a percentage of the ex-showroom price. The rate depends on the car's engine size, fuel type, and length, and is added to the vehicle’s base price.

How much is GST on cars below INR 10 lakh?

Cars priced below INR 10 lakh and with engines within small car limits generally attract an 18% GST rate, resulting in lower overall taxes.

Which cars will be cheaper after GST reform?

Smaller petrol, diesel, CNG, and hybrid cars with engines up to 1200 cc (petrol) or 1500 cc (diesel) will be cheaper due to reduced GST rates from 28% to 18%.

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