---
title: "New GST on Vehicles 2026: 5% to 40% Rate on Cars, Bikes"
description: "New GST rate on vehicles in 2026 is 5% to 40% on cars, bikes and commercial vehicles. Apply the correct GST rate automatically with Busy on every invoice."
canonical: "https://busy.in/gst-rates/vehicles/"
author: "Rithesh Bajoriya"
published: "2025-05-15T07:21:52.000Z"
category: "GST Rates"
---

-   Revised GST rates for vehicles are applicable from **22 September 2025**, with notified vehicle categories attracting **18% or 40% GST slabs**.
-   Earlier, many vehicles were taxed at **28% GST along with compensation cess**, depending on the vehicle category.
-   Used vehicles sold by eligible GST-registered dealers are taxed under the margin scheme, with **18% GST applicable on the margin value**.
-   Individual-to-individual sale of used vehicles does not attract GST.
-   Vehicle parts, accessories, and related products are taxed according to their applicable HSN classification.

# 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)**](https://busy.in/gst/)  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 revised GST rates applicable from **22 Sep 2025** are provided below for petrol and diesel vehicles (without compensation cess).

| Vehicle Type | New GST Rate | Compensation Cess |
| --- | --- | --- |
| Small petrol cars (<1200cc and length up to 4000 mm) | **18%** | None |
| Small diesel cars (<1500cc and length up to 4000 mm) | **18%** | None |
| Mid-size and large cars | **40%** | None |
| Luxury cars | **40%** | None |
| SUVs (>1500cc, length >4000 mm and ground clearance ≥170 mm) | **40%** | None |

The revised structure replaces the earlier GST plus compensation cess system, with standard vehicles generally taxed at **18%** and specified luxury/demerit vehicles taxed at **40%** without cess.

## Old GST Rates on Vehicles

**(Old GST Rates – Applicable Until 21st September)**

### **Petrol and Diesel Vehicles (Internal Combustion Engine)**

Before the GST rate revision, most traditional vehicles attracted **28% GST along with compensation cess**, which varied based on the vehicle category.

| 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 classified vehicles based on size, engine capacity, and luxury category, with compensation cess applied in addition to GST.

## 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.

**Get a Free Demo of –**  [**Accounting Software for Auto Parts Store**](https://busy.in/accounting-software/auto-parts/)

Live Demo Available Today

## Register Fleet Vehicles as Fixed Assets for Depreciation

Trusted by 6,00,000+ Users

4.6 Google Rating

## **GST on Used Vehicles**

Selling or buying used vehicles? Here’s how GST works:

-   If sold by a **GST-registered dealer under the applicable margin scheme**, GST is charged only on the **margin value** (selling price minus purchase price, subject to applicable rules).
-   The applicable GST rate for eligible used vehicles is **18% on the margin value**.
-   If sold between individuals (non-business transactions), **no GST is applicable**.

This margin scheme helps avoid taxation on the entire value of second-hand vehicles and prevents double taxation.

**Get a Free Trial –**  [**Best Accounting Software For Small Business**](https://busy.in/accounting-software/)

## **GST on Vehicle Accessories & Spare Parts**

Accessories and spare parts are taxed according to their applicable HSN classification.

-   Most vehicle accessories and spare parts attract **18% GST**.
-   GST rates depend on the specific product category and HSN classification.

**Get a Free Trial –**  [**Best GST Accounting Software For Small Business**](https://busy.in/accounting-software/gst-accounting/)

## 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.

**Get a Free Demo of –**  [**Best Billing and Invoicing Software**](https://busy.in/accounting-software/invoicing-and-gst-billing/)

## Input Tax Credit (ITC) for Vehicles

You can  [**claim Input Tax Credit**](https://busy.in/gst/what-expenses-can-be-claimed-as-itc/)  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**](https://busy.in/gst/input-tax-credit/)  on motor vehicles is not allowed.

Ensure every  [**GST invoice**](https://busy.in/gst/a-guide-to-invoicing-under-gst/)  for vehicle purchases or leases reflects accurate tax details.

## About the author

**Rithesh Bajoriya**

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

### What is the standard GST rate on vehicles?

The GST rate on vehicles depends on the vehicle category. Under the revised GST structure, vehicles generally attract **18% or 40% GST**, with **no compensation cess applicable**.

### Is there any benefit on GST for electric vehicles?

Yes, the **GST on electric vehicles** is only **5%**, promoting affordability and green mobility.

### What's the GST on luxury cars or SUVs?

Luxury cars and SUVs attract 40% GST under the revised GST structure. The earlier compensation cess system has been removed.

### Do used cars attract GST?

Yes, if sold by a registered dealer. GST is charged on the **margin**, not the full transaction value.

### 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.

## 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/)