GST on Cars in India: Tax Rate by Type and Segment

Buying a car in India? Whether it’s a small hatchback or a luxury SUV, understanding the GST (Goods and Services Tax) structure is essential. This guide explains the GST rates on different car types, the relevant HSN code, and how the tax impacts pricing and the automotive industry.

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    GST Rates

    GST Rate on Cars: Explained by Type

    Under India’s GST regime, cars are generally taxed at a base rate of 28%. However, most vehicles also attract a compensation cess depending on their engine size and category.

    Here’s a breakdown of GST and cess rates:

    Car Type Engine Size GST Rate Compensation Cess Total Tax Rate
    Small cars
    (Petrol)    		 Below 1200cc 28% 1% 29%
    Small cars
    (Diesel)    		 Below 1500cc 28% 3% 31%
    Mid-size cars 1200cc – 1500cc 28% 15% 43%
    SUVs Over 1500cc & 170mm+ ground clearance 28% 22% 50%
    Luxury cars
    (Petrol)    		 Over 1500cc 28% 20% 48%
    Luxury cars
    (EVs)    		 All sizes 5% None 5%

    HSN Code for Cars

    All passenger motor vehicles are classified under HSN Code 8703, which covers cars primarily used for the transport of people.

    GST Calculation Example

    If you’re buying a mid-size petrol car with an ex-showroom price of ₹10,00,000:

    • Base GST (28%) = ₹2,80,000
    • Compensation Cess (15%) = ₹1,50,000
    • Total GST = ₹4,30,000
    • Total Price = ₹10,00,000 + ₹4,30,000 = ₹14,30,000

    So, you’ll pay ₹4.3 lakh in tax alone on a ₹10 lakh car.

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    GST on Electric Vehicles

    To encourage green mobility, GST on electric vehicles (EVs) is significantly lower — only 5%, with no additional cess. This makes EVs more affordable and attractive to buyers.

    Impact of GST on the Car Market

    Standardized Taxation

    Before GST (Goods and Services Tax), buyers paid multiple taxes like excise duty, VAT, and road tax, varying by state. GST streamlined this with a single national rate.

    Higher Price for Premium Cars

    The high compensation cess on mid-size, SUVs, and luxury cars increased prices post-GST. However, small cars didn’t see a major impact.

    EV Market Growth

    The 5% GST on EVs, compared to the 43%–50% on regular cars, makes them far more competitive, boosting EV adoption in India.

    Unique Features of BUSY Accounting Software For the Car Industry
    • Track vehicle sale and purchase details including model, engine, and chassis numbers.
    • Maintain auto parts inventory with serial number/ brand-wise tracking.
    • Generate job cards for vehicle servicing with parts and labour details.
    • Manage customer history with vehicle-wise warranty and service tracking.
    • Track post-sale payments, EMIs, and vehicle financing details.
    • Calculate commissions for salespersons or vehicle agents automatically.
    • Generate vehicle-wise profit, service revenue, and stock movement reports.

    Conclusion

    Understanding the GST structure on cars helps you calculate the actual cost before making a purchase. With tax rates varying by segment, it’s important to factor in both GST and cess. While regular cars are taxed heavily, electric vehicles benefit from a much lower rate, making them a smart and eco-friendly choice.

    Frequently Asked Questions (FAQs)

    • What is the GST rate for small cars in India?
      Petrol small cars attract 28% GST plus 1% cess (29% total), while diesel small cars attract 28% GST plus 3% cess (31% total).
    • Is GST applicable on used cars?
      Yes, GST is applicable at a reduced rate (12% or 18%) if sold by a registered dealer. There’s no cess on second-hand vehicles.
    • What is the GST rate on electric cars?
      Electric cars are taxed at a flat rate of 5%, without any compensation cess.
    • Can I claim input tax credit (ITC) on car purchases?
      ITC is generally not allowed on motor vehicles, unless the car is used for specific purposes such as passenger transportation or driver training.
    • Does GST include insurance and registration?
      No, GST applies only to the ex-showroom price. Registration fees, insurance, and road tax are charged separately by the state.
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