--- title: "New GST for Car 2026: 18% / 40% Rate on Cars, SUVs & Automobiles" description: "New GST rate on cars in 2026 is 18% on small cars and 40% on luxury and large cars. Busy auto-applies the right GST slab on every invoice effortlessly." canonical: "https://busy.in/gst-rates/car/" author: "Hitesh Aggarwal" published: "2025-04-22T05:25:38.000Z" category: "GST Rates" --- - 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. # New 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 Car HSN code, and how the tax impacts pricing and the automotive industry. ## **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% | ## **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. **Get a Free Demo of –** [**Accounting and Auto Billing Software for Auto Parts Store**](https://busy.in/accounting-software/auto-parts/) Live Demo Available Today ## Manage Multi Branch Business In One System With BUSY Trusted by 6,00,000+ Users 4.6 Google Rating \* No credit card required ## **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**](https://busy.in/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. ## **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. ## About the author **Hitesh Aggarwal** As a Chartered Accountant with over 12 years of experience, I am not only skilled in my profession but also passionate about writing. I specialize in producing insightful content on topics like GST, accounts payable, and income tax, confidently delivering valuable information that engages and informs my audience. ## Frequently asked questions ### What is the GST rate for small cars in India? After the updated GST structure effective 22 September 2025, small petrol and diesel cars are taxed at 18% GST, with no compensation cess. Earlier, petrol small cars attracted 29% (28% GST + 1% cess) and diesel small cars 31% (28% GST + 3% cess). ### Is GST applicable on used cars? Yes, GST may apply when a registered dealer sells a used car under the margin scheme. In this case, GST is charged only on the dealer’s profit margin, typically at 12% or 18% depending on the vehicle type. Private individual-to-individual sales generally do not attract GST. ### What is the GST rate on electric cars? Earlier, electric cars attracted a concessional GST rate of 5% without compensation cess. Under the revised GST framework effective after 22 September 2025, electric cars are expected to be taxed at 40% GST with no compensation cess. ### Can I claim Input Tax Credit (ITC) on car purchases? Generally, Input Tax Credit (ITC) is not allowed on motor vehicles purchased for personal or business use. However, ITC may be claimed if the vehicle is used for specific purposes such as: passenger transportation services (taxi, ride-hailing), driving schools or training and vehicle resale by dealers. ### Does GST include insurance and registration charges? No. GST is applied only to the vehicle’s ex-showroom price. Additional costs such as road tax, registration fees, insurance, and handling charges are charged separately by the respective state government or service provider. ## Related articles - [New GST on Skincare Products: Rate, Branding & Retail Pricing](https://busy.in/gst-rates/skincare-products/) - [New GST on Industrial Machinery: Slabs, ITC & MSME Effect](https://busy.in/gst-rates/industrial-machinery/) - [New GST on Restaurant Meals: Dine-in, Takeaway & Delivery Compared](https://busy.in/gst-rates/restaurant-meals/) - [New GST on Kitchen Utensils: What’s Taxed and What’s Not?](https://busy.in/gst-rates/kitchen-utensils/) - [New GST on Online Education: Rate, Exemptions & EdTech Impact](https://busy.in/gst-rates/online-education/) - [New GST on Packaging Materials: Tax Implication Across Industries](https://busy.in/gst-rates/packaging-materials/) - [New GST on Digital Marketing Services: Tax Rates & Input Credit Explained](https://busy.in/gst-rates/digital-marketing-services/) - [New GST on Pesticides: Rates, Agri-Exemptions & Sector Impact](https://busy.in/gst-rates/pesticides/) - [New GST on Butter: From Dairy to Dining – What You Pay](https://busy.in/gst-rates/butter/) - [GST on Honey: Rate, Applicability & Industry Outlook](https://busy.in/gst-rates/honey/)