New GST on Vehicles in India: Updated Tax Rates
Planning to buy or sell a vehicle in India? It’s important to understand how the GST (Goods and Services Tax) applies. The gst on vehicles depends on several factors — such as the type of vehicle, fuel used, and its specifications. In this blog, we’ll explain the different GST rates on vehicles, from regular petrol cars to electric vehicles.
New GST Rate on Vehicles in India
The Government of India is updating GST rates effective after 22 Sep 2025. Below are the expected new GST rates for petrol and diesel vehicles (no compensation cess).
| Vehicle Type | New GST Rate | Compensation Cess |
|---|---|---|
| Small petrol cars (<1200cc, <4m) | 18% | None |
| Small diesel cars (<1500cc, <4m) | 18% | None |
| Mid-size cars | 40% | None |
| Luxury cars | 40% | None |
| SUVs (>4m, >1500cc) | 40% | None |
This structure differentiates standard vehicles (generally 18%) from demerit/luxury categories (40%).
Old GST Rates on Vehicles
(Old GST Rates – Applicable Until 21st September)
Petrol and Diesel Vehicles (Internal Combustion Engine)
Most traditional vehicles fall under the 28% GST slab. However, they also attract an additional Compensation Cess, which varies by vehicle type.
| Vehicle Type | GST Rate | Compensation Cess |
|---|---|---|
| Small petrol cars (<1200cc, <4m) | 28% | 1% |
| Small diesel cars (<1500cc, <4m) | 28% | 3% |
| Mid-size cars | 28% | 15% |
| Luxury cars | 28% | 20% |
| SUVs (>4m, >1500cc) | 28% | 22% |
This structure helps regulate vehicle categories based on their emissions and luxury status.
GST on Electric Vehicles
To promote clean energy, the government has applied a concessional 5% GST on electric vehicles. This rate applies to both two-wheelers and four-wheelers that are battery-operated.
So if you’re buying an EV, the tax burden is much lower than a regular vehicle, making them more affordable and eco-friendly.
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GST on Used Vehicles
Selling or buying used vehicles? Here’s how GST works:
- If sold by a registered dealer, GST is charged only on the margin (selling price minus purchase price).
- The applicable GST rate is usually 12% or 18%, depending on the vehicle type.
- If sold between individuals (non-business), no GST is applicable.
This margin scheme helps prevent double taxation on second-hand vehicles.
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GST on Vehicle Accessories & Spare Parts
Accessories and spare parts don’t enjoy concessional GST rates:
- Most accessories: 18% GST
- High-end items like alloy wheels, infotainment systems: 28%
- Standard parts (brake pads, filters, batteries): 18%
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GST on EV Batteries and Charging Services
Even though electric vehicles attract only 5% GST, components are taxed differently:
- Lithium-ion batteries: 18%
- Charging services: 18%
This disparity is a concern for the EV industry, which seeks uniform taxation across all related components.
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Input Tax Credit (ITC) for Vehicles
You can claim Input Tax Credit only under specific conditions, such as:
- If you’re a car dealer or vehicle manufacturer
- If the vehicle is used for passenger transport (taxis, cabs)
- If used for driving schools or training
For personal or office use, Input Tax Credit on motor vehicles is not allowed.
Ensure every GST invoice for vehicle purchases or leases reflects accurate tax details.
As a Chartered Accountant with over 18 years of experience, I have honed my skills in the field and developed a genuine passion for writing. I specialize in crafting insightful content on topics such as GST, income tax, audits, and accounts payable. By focusing on delivering information that is both engaging and informative, my aim is to share valuable insights that resonate with readers.
Frequently Asked Questions
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What is the standard GST rate on vehicles?The base GST rate is 28%, but an additional cess ranging from 1% to 22% may apply based on the vehicle type.
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Is there any benefit on GST for electric vehicles?Yes, the GST on electric vehicles is only 5%, promoting affordability and green mobility.
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What's the GST on luxury cars or SUVs?Luxury vehicles and SUVs are taxed at 28% GST plus up to 22% cess, making them significantly costlier.
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Do used cars attract GST?Yes, if sold by a registered dealer. GST is charged on the margin, not the full transaction value.
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Can I claim GST paid on a company vehicle?Only if the vehicle is used for resale, passenger transport, or driver training. In other cases, ITC is blocked.