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 car GST 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?
The Goods and Services Tax (GST) on vehicles is a unified indirect tax applied to the manufacture, sale, and consumption of goods and services across India. In the automobile sector, this system transformed vehicle taxation in India by replacing the earlier complex structure 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. Over the years, the GST impact on car prices has been significant, influencing both affordability and consumer demand. With the introduction of GST 2.0 on September 3, 2025, the government has further streamlined the tax structure for cars to enhance affordability and improve tax administration.
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.
