New GST on Vehicles in India: Updated Tax 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.
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.
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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 |
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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% |
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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.
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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.
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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.
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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.
