New GST on Cars in India: Tax Rate by Type and Segment
- The car gst rate under the revised structure effective from 22 September 2025 is 18% for qualifying small cars and 40% for larger and mid-size cars, with no separate Compensation Cess.
- Small petrol/LPG/CNG cars up to 1200cc and 4000 mm in length, and diesel cars up to 1500cc and 4000 mm in length, attract 18% GST.
- Larger cars, including applicable SUVs, MUVs and other utility vehicles, generally attract 40% GST without Compensation Cess under the revised structure.
- Electric cars continue to attract 5% GST, significantly lower than petrol and diesel cars.
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.
Overstock In One Godown, Shortage In Another?
Join our guided walkthrough to see how BUSY can transform your business operations.
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, fuel type, and applicable classification. Traditionally, most petrol and diesel cars attracted 28% GST plus Compensation Cess, which increased the overall tax burden on larger and luxury vehicles.
Under the GST changes effective from 22 September 2025, the tax structure has been simplified. The gst on cars is 18% for qualifying small cars and 40% for mid-size and large cars, with no separate Compensation Cess under the revised structure. Electric cars continue to attract 5% GST.
New GST Rate on Cars in India
| Car Type | Engine Size / Conditions | GST Rate (After 22 Sept 2025) | Total Tax Earlier |
|---|---|---|---|
| Small cars (Petrol/LPG/CNG) | Up to 1200cc and length up to 4000 mm | 18% | 29% (28% + 1% cess) |
| Small cars (Diesel) | Up to 1500cc and length up to 4000 mm | 18% | 31% (28% + 3% cess) |
| Other mid-size cars not qualifying as small cars | Based on applicable vehicle classification | 40% | 45% (28% + 17% cess), where applicable |
| Large cars | Engine above 1500cc / applicable large-car classification | 40% | 48% (28% + 20% cess) |
| SUVs / applicable utility vehicles | Engine above 1500cc, length above 4000 mm and ground clearance of 170 mm or more | 40% | 50% (28% + 22% cess) |
| Electric cars (EVs) | All applicable electric cars | 5% | 5% |
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
Car Type
Engine Size / Conditions
GST Rate (After 22 Sept 2025)
Total Tax Earlier
The current GST Council position is 18% for qualifying small cars, 40% for other mid-size/large and qualifying utility vehicles without separate cess, and 5% for electric vehicles.
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 the taxable value before GST of a mid-size or large petrol car is ₹10,00,000 and the applicable GST rate is 40%:
- GST @40% = ₹4,00,000
- Price including GST = ₹10,00,000 + ₹4,00,000 = ₹14,00,000
So, the GST component on a taxable value of ₹10 lakh would be ₹4 lakh.
Note: If ₹10,00,000 is the ex-showroom price, GST is generally already included in that price and should not be added again.
The gst on car purchase is calculated on the applicable taxable value of the vehicle and is generally included in the ex-showroom price. Road tax, registration charges, and other applicable state levies are separate from GST.
Manage Multi Branch Business In One System With BUSY
* No credit card required
GST on Electric Vehicles
To encourage green mobility, GST on electric vehicles (EVs) is significantly lower at 5%, with no additional Compensation Cess. This gives electric cars a lower GST burden than conventional petrol and diesel cars.
Impact of GST on the Car Market
Standardized Taxation
Before GST, car purchases were subject to taxes such as excise duty and VAT. GST replaced several of these indirect taxes with a national GST framework. However, road tax or motor vehicle tax continues to be levied separately by states/UTs and is not included in the GST rate.
Revised Tax on Larger Cars
Before 22 September 2025, mid-size, large, SUV, and luxury car categories generally attracted 28% GST plus Compensation Cess, resulting in an overall tax incidence of around 45%–50% in applicable cases. Under the revised structure, these vehicles generally attract 40% GST without separate Compensation Cess, reducing the effective tax burden in several categories.
EV Market Growth
The 5% GST on electric vehicles, compared with 18% for qualifying small conventional cars and 40% for larger conventional cars, gives EVs a significant GST advantage.
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.
