GUIDESPERSONAL FINANCE
Explore GST on Cars & Vehicles - Updated Rates
6 MIN • 
LAST EDITED BY RUPALI AMIN ON SEPTEMBER 10, 2025.
LAST EDITED BY RUPALI AMIN ON SEPTEMBER 10, 2025.
GUIDES LAST EDITED BY RUPALI AMIN ON SEPTEMBER 10, 2025.
Understanding the Goods and Services Tax (GST) on automobiles in India is essential for both consumers and businesses in the ever-changing automotive sector. The GST rate on car purchases has recently been overhauled.
This article will discuss the new vehicle GST rates and the impact of the changes on the Indian automotive industry, including on two-wheelers and commercial vehicles, along with information on GST on automobiles and insurance.
The GST Council has introduced a new simplified tax structure, with the removal of the additional cess for most categories of vehicles. The new tax structure will change the total tax burden on different types of motor vehicles and aims to simplify the tax system while making vehicles more affordable. Let's delve into the specifics:
Small cars and two-wheelers with an engine capacity of less than 350 cc will now attract a GST of 18%. This is a significant reduction from the previous rate of 28% plus cess, resulting in a total tax of 29-31%. This change is expected to make entry-level vehicles more affordable and boost demand in the mass-market segment.
For GST purposes, small cars are defined as petrol, LPG or CNG vehicles with an engine capacity up to 1200 cc and a length up to 4000 mm. For diesel cars, the engine capacity is up to 1500 cc with a length not exceeding 4000 mm.
SUVs and two-wheelers with an engine capacity over 350 cc, as well as cars with an engine capacity over 1200cc (petrol) or 1500cc (diesel) or longer than 4000mm, will now be subject to a single rate of 40% GST.
In the past, these cars had to pay a compensation cess in addition to 28% GST, which raised the overall effective tax to between 43% and 50%. Many of these vehicles will see a net price reduction as a result of the compensation cess being eliminated.
Commercial vehicles, including trucks and buses, are now subject to an 18% GST, down from the previous 28%. This reduction is expected to revitalise India's transport and logistics sector.
The GST rate on auto parts and accessories has also been simplified, with a uniform rate of 18%.
Auto insurance, which is subject to an 18% GST rate, is required for all vehicles on Indian roads. This includes third-party liability insurance as well as comprehensive insurance plans.
The GST service tax applies to the premium amount as well as any additional expenses or fees associated with the insurance policy. Therefore, when calculating the overall cost of insurance, the GST component needs to be taken into account.
To give you a clearer picture of the changes, here is a table highlighting the old and new GST rates for various vehicle categories.
The government's push for a sustainable future is evident in the preferential treatment given to electric vehicles. Electric vehicles (EVs) continue to enjoy a reduced GST rate of 5%, making them an attractive option for eco-conscious consumers.
This initiative aims to promote cleaner transportation and reduce the carbon footprint. Additionally, the GST on charging stations and EV chargers has been reduced from 18% to 5%.
Commercial vehicles play a pivotal role in the country's logistics and transportation sector. The new commercial vehicle GST rate of 18% is a bold and timely step toward revitalising India's transport and logistics backbone, making it a more straightforward taxation structure for businesses involved in the transportation sector.
To sum up, the new GST laws represent a dramatic change in the Indian auto sector. The rationalisation of the tax on larger vehicles and the reduction of the tax burden on small cars, commercial vehicles, and two-wheelers are intended to improve consumer satisfaction and spur economic expansion.
Keeping up with these changes is essential for a smooth and knowledgeable car-buying experience.
The new GST on cars in India has been simplified into two main slabs: 18% and 40%. The 18% rate applies to small cars and two-wheelers with an engine capacity of less than 350cc. The 40% rate applies to larger cars and SUVs. Electric vehicles continue to have a 5% GST rate.
The GST rate on car purchases now depends on the car's length, fuel type, and engine capacity.
Yes, the GST rate on electric vehicles remains unchanged at a concessional rate of 5%. This is significantly lower than the tax burden on petrol or diesel cars, making EVs more affordable.
The Indian government offers a low GST rate of 5% on all EVs. This is a significant incentive to promote cleaner mobility.
The new tax structure is expected to lower the overall cost for most vehicle categories. The reduction in GST from 28% to 18% on small cars and two-wheelers will lead to significant savings for consumers.
The removal of the cess component on larger cars will also result in a price drop, despite the increase in the base GST rate to 40%. This is expected to boost sales and make vehicles more affordable.
Yes, the new GST on car purchase can indirectly affect your EMI. The new GST rates primarily impact the ex-showroom price of the vehicle. Since the loan amount and subsequent EMI are calculated based on this price, a lower on-road price due to a reduced tax rate will lead to a smaller loan requirement and a reduced EMI. This makes car financing more affordable for buyers.
The automobile GST rate on all auto parts and accessories has been rationalised to a single rate of 18%. This is a significant change, as many parts were previously taxed at a higher rate. This uniformity simplifies pricing and is expected to reduce the overall cost of maintenance and repairs for car owners.
Yes. Under the new rules, hybrid vehicles are taxed according to the same engine and length criteria as their petrol or diesel counterparts. This means that a hybrid vehicle meeting the criteria for a "small car" will be taxed at 18%, while larger or luxury hybrids will be subject to the 40% GST rate.
The GST on vehicle purchase in the pre-owned market remains largely unaffected. For used cars sold by a dealer, GST is levied only on the margin (the difference between the sale price and the purchase price). The uniform tax rate for this is 18%. The recent changes to new car GST rates do not directly impact the taxation of used vehicles.
The GST on a small car purchase is now 18%, a significant reduction from the previous effective tax rate of up to 31% (which included a 28% GST plus an additional cess). This change lowers the total GST on vehicle purchase for consumers.
For GST purposes, a "small car" is defined as a vehicle that meets specific criteria:
This new automobile GST rate is aimed at making entry-level vehicles more affordable and boosting demand in the mass-market segment.
