GST on Cars in India 2025: New Tax Rates, EV Benefits, and Industry 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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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.

GST rates on cars after reform 2.0

Under Reform 2.0, the government has adjusted GST and cess rates for internal combustion engine (ICE) and hybrid vehicles, depending on their engine size and length, while electric vehicles remain at a steady 5%. For petrol, LPG, or CNG vehicles up to 1,200 cc and length up to 4,000 mm, the old rate of 28% plus 1% cess has dropped to 18%. Diesel vehicles up to 1,500 cc and length up to 4,000 mm, which used to attract 28% plus 3% cess, now also fall under the 18% rate. Cars beyond these limits or other passenger vehicles that were taxed at 28% plus 15–22% cess are now charged at 40%. Hybrids follow a similar scheme: spark-ignition + electric hybrids under 1,200 cc and within the 4,000 mm length limit now have 18%, while larger or longer hybrids fall under 40%. Compression-ignition + electric hybrids adhere to the same thresholds. Throughout this reform, electric motor vehicles remain unchanged at 5%, keeping incentives for EV adoption intact.

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.

How much is GST on cars?

After the GST reforms, car taxation has been streamlined, and the compensation cess eliminated. Small cars with engine capacities up to 1200cc (petrol) or 1500cc (diesel) and under 4 meters in length are now subject to a reduced GST rate of 18%. Most other vehicles—including mid-sized cars, luxury cars, and SUVs—are taxed at a uniform 40% GST. Electric vehicles continue to benefit from the lowest GST rate of 5%.

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

Effective September 22, 2025, the GST classification for cars has been simplified into main categories. "Small Cars" (petrol engines under 1200cc or diesel under 1500cc, both less than 4 meters in length) are taxed at 18% GST, while "Other Motor Vehicles" (including mid-sized cars, SUVs, and luxury vehicles) attract a 40% GST. Electric vehicles and ambulances fall under special categories, with concessional GST rates of 5% and 18% respectively. The previous complex cess structure for different vehicle types has been removed.

What is the lowest GST rate applicable to automobiles?

The lowest GST rate for automobiles in India remains at 5%, applied to electric vehicles (EVs). This concessional rate was retained in the recent GST reforms as part of the government’s ongoing effort to encourage environmentally friendly transportation and boost the adoption of sustainable automotive technologies.

Can I claim GST on my car?

The guidelines for claiming Input Tax Credit (ITC) on cars remain the same following the GST reforms. Businesses can claim GST paid on a vehicle only if it is used for specific commercial purposes, such as taxi services, driving schools, or goods transportation. Additionally, the car must be registered in the company’s name. ITC cannot be claimed if the vehicle is used for personal use. A significant advantage of the recent reform is that businesses can now claim ITC on the full 40% GST paid on luxury cars, whereas earlier, the cess portion was not eligible for ITC.

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