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  7. GST on Cars in India 2025 New Tax Rates Calculation and Exemptions

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

Updated on: 28 Nov, 2025 03:19 PM

The GST 2.0 reforms implemented in 2025 changed how cars are taxed in India. The government simplified slabs and reclassified vehicles so that many small cars and everyday vehicles now attract a lower GST, while luxury and sin goods face a higher rate. These changes affect prices, buying decisions, and the auto market’s demand-supply dynamics.

Key Highlights

  • Small cars meeting defined size/engine limits now attract 18% GST, down from the earlier 28% + cess.
  • Luxury and high capacity vehicles and “sin” goods are taxed at 40% GST.
  • Electric vehicles (EVs) and specially exempt categories retain lower rates (commonly 5% or specific concessions).

The reforms aim to make entry level vehicles more affordable and keep premium goods appropriately taxed.

Contents

What is GST on Cars?

GST on cars is the tax applied to the manufacture, sale and import of motor vehicles under India’s Goods and Services Tax framework. The GST payable on a car is applied on the value of supply (typically ex-showroom price plus applicable additions) and depends on the car’s classification, small/compact, mid-segment, luxury, electric, etc. The GST Council’s 2025 reforms redefined these categories and rates.

New GST Rates on Cars in India?

From 22 September 2025, the government introduced the revised rates for vehicles as part of GST 2.0. The main practical categories are:

  • 5% GST — Electric vehicles and specific concessional cases (e.g., vehicles for disabled persons, certain EVs).
  • 18% GST — Small cars that meet defined parameters (length ≤ 4,000 mm, petrol engine ≤ 1,200 cc or diesel engine ≤ 1,500 cc) and many mass-market vehicles and motorbikes up to 350 cc. This replaces the earlier 28% + cess for most of these models.
  • 40% GST — Luxury and premium vehicles, high-capacity bikes (>350 cc), and other high-end or “sin” goods now fall in this slab. This consolidates prior 28% + high cess bands into one slab for such items.

Example of GST on Cars

Example — Small Petrol Car (ex-showroom ₹7,00,000)

  • GST at 18% = ₹7,00,000 × 18% = ₹1,26,000.
  • Approximate on-road impact will include registration, insurance, dealer fees, and state taxes (which vary), but the GST portion is ₹1.26 lakh.

Example — Luxury Car (ex-showroom ₹40,00,000)

  • GST at 40% = ₹40,00,000 × 40% = ₹16,00,000.
  • Clearly, the tax element is substantial for luxury vehicles under the new slab.

What is Value of Supply to Calculate GST on Cars?

The value of supply is the taxable base for GST. For cars, it typically includes:

  • Ex-showroom price (manufacturer’s invoice)
  • Any optional accessories fitted at dealer (if sold with car)
  • Subsidies or discounts linked to supply (if applicable)

GST is calculated on this taxable value. For imported cars, customs duties and CVD components may factor into the assessable value for IGST at import stage. Always refer to dealer invoices for the exact taxable base.

GST on Import of Cars

Imported cars attract IGST at the applicable GST slab plus customs duty. After GST 2.0, rates applied to imported cars mirror the domestic slabs (5%, 18% or 40%) depending on classification. Customs valuation rules determine the value on which IGST is applied (typically the transaction value plus assessable additions). Importers must clear customs, pay IGST, and follow import compliance.

Exemptions of GST Rates on Cars

Some categories enjoy concessional or zero/low GST treatment:

  • Electric vehicles (EVs) — often taxed at 5% to promote green mobility.
  • Vehicles for persons with disabilities and certain government/ambulance/defence supplies can get concessional or exempt treatment depending on rules.
  • Specific incentives or state-level reductions can apply via schemes — check current notifications and dealer disclosures.

Need help with GST registration, GST filing or GST notice assistance? Get in touch with GST experts who can help you everything related to GST right from registration, to filing to resolving notices. Get in touch with Tax2win GST Experts!

Frequently Asked Questions

Q- What is the current GST rate on cars in India (2025)?

Small cars that meet size/engine limits: 18%; EVs and certain concessional vehicles: 5%; luxury and high-capacity cars: 40%.

Q- When did these GST changes take effect?

The GST 2.0 rate changes were implemented effective 22 September 2025, following GST Council decisions.

Q- Does the GST change include cess for cars?

The 2025 reform consolidated many cess structures into single GST slabs. For most cars, the previous cess was subsumed, but some earlier cess implications were converted into the 40% slab for luxury goods.

Q- Are electric vehicles taxed lower than petrol cars?

Yes. EVs generally attract 5% GST (subject to specific eligibility rules) to encourage adoption.

Q- How does GST affect on-road price?

GST is one component — on-road price also includes RTO/registration charges, insurance, and dealer handling. Lower GST reduces the taxable portion and can lower ex-showroom pricing.

Q- If I import a car, which tax applies?

Imported cars attract IGST at the applicable slab (5%, 18% or 40%) plus customs duty; IGST is calculated on the customs assessable value.

Q- Will manufacturers pass the GST benefit to buyers?

Many manufacturers have already adjusted ex-showroom prices for select models after the September 2025 reforms; actual consumer benefit depends on company pricing decisions and dealer margins.

Q- Do SUVs automatically fall in 40% slab?

Not automatically. Some compact SUVs that meet the small-car parameters (length / engine limits) qualify for 18%; large SUVs and premium SUVs generally fall in 40%. Check the model’s specifications.

Q- Is finance/loan EMI affected by GST changes?

Reduced GST lowers the principal on which you buy a car, which can reduce EMIs slightly (depending on loan terms and how much of the price reduction the dealer passes on).

Q- Where can I verify the exact GST rate for a model?

Confirm with the car dealer, manufacturer price sheet, or GST Council/CBIC notifications. Dealers must show GST amounts on invoices.

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CA Abhishek Soni

CA Abhishek Soni
Founder & CEO at Tax2win

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Abhishek Soni is a Chartered Accountant by profession and an entrepreneur by passion. He has wide industry experience in telecom, retail, manufacturing, and entertainment and has handled various national and international assignments. He is the co-founder and CEO of Tax2win.in. Tax2win, an online tax filing platform, provides the easiest way to e-file your Income Tax Return in India. Through Tax2win.in, Abhishek endeavors to revolutionize how individuals file their income tax returns, offering a seamless and user-friendly experience.