New GST on Cars in India: Tax Rate by Type and Segment
Quick Summary
- The Indian government has updated GST rates for cars, effective after September 22, 2025, with no compensation cess applied.
- Small petrol and diesel cars have a GST rate of 18%, while mid-size cars, SUVs, and luxury cars have a 40% rate.
- Electric vehicles (EVs) benefit from a lower GST rate of 5% with no additional cess, encouraging their adoption.
- GST has streamlined car taxation in India, though it has increased prices for premium cars while making EVs more competitive.
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 Car HSN code, and how the tax impacts pricing and the automotive industry.
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GST on Cars in India
Cars in India are taxed under the Goods and Services Tax (GST) system, with rates depending on the engine size, vehicle category, and fuel type. Traditionally, most cars attracted 28% GST plus a compensation cess, which increased the overall tax burden on larger and luxury vehicles.
Under the GST changes effective after 22 September 2025, the tax structure has been simplified. The compensation cess on cars has been removed, and vehicles are taxed directly under two main slabs: 18% and 40%, depending on the category.
New GST Rate on Cars in India
| Car Type | Engine Size | GST Rate (After 22 Sept 2025) |
Total Tax (Earlier) |
|---|---|---|---|
| Small cars (Petrol) | Below 1200cc | 18% | 29% (28% + 1% cess) |
| Small cars (Diesel) | Below 1500cc | 18% | 31% (28% + 3% cess) |
| Mid-size cars | 1200cc – 1500cc | 40% | 43% (28% + 15% cess) |
| SUVs | Over 1500cc & 170mm+ ground clearance | 40% | 50% (28% + 22% cess) |
| Luxury cars (Petrol) | Over 1500cc | 40% | 48% (28% + 20% cess) |
| Electric cars (EVs) | All sizes | 40% | 5% |
(After 22 Sept 2025) 18%
(Earlier) 29% (28% + 1% cess)
(After 22 Sept 2025) 18%
(Earlier) 31% (28% + 3% cess)
(After 22 Sept 2025) 40%
(Earlier) 43% (28% + 15% cess)
(After 22 Sept 2025) 40%
(Earlier) 50% (28% + 22% cess)
(After 22 Sept 2025) 40%
(Earlier) 48% (28% + 20% cess)
(After 22 Sept 2025) 40%
(Earlier) 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.
How to Calculate GST on Cars
If you’re buying a mid-size petrol car with an ex-showroom price of ₹10,00,000:
- Base GST (40%) = ₹4,00,000
- Total Price = ₹10,00,000 + ₹4,00,000 = ₹14,00,000
So, you’ll pay ₹4 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 18% or 40% on regular cars, makes them far more competitive, boosting EV adoption in India.
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- 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.
