The New GST Structure Explained
Until now, car taxation was messy—28% GST plus a cess that depended on engine size, fuel type, or whether it looked “luxurious” enough.
From 22 September 2025, that patchwork is gone. We now have three neat slabs:
- 5% GST → Essential goods and all electric vehicles
- 18% GST → Small ICE cars, motorcycles up to 350cc, auto parts, ambulances, three-wheelers
- 40% GST → Large SUVs, cars longer than 4 metres, premium bikes, and luxury imports
That’s it. No hidden cess. No confusing add-ons.
Why Small Cars Are the Big Winners
For a family thinking of a Maruti Swift or Tata Nexon (petrol under 1200cc), this is real relief. The GST drops from nearly 30% to 18% flat. That means anywhere between ₹10,000–₹50,000 in savings, depending on the model.
Even better, auto parts and accessories are now at 18%, which means servicing bills could finally feel a bit lighter.
To be fair, this is the part of the reform that will be most visible in the short term. Small cars have always been the bread and butter of Indian roads, and cheaper pricing could boost festive sales.
Luxury Cars and SUVs: Still in the Crosshairs
Now for the other side. If you had your eye on a Mercedes GLE or Toyota Fortuner, brace yourself. Vehicles with petrol engines above 1200cc, diesel above 1500cc, or bodies longer than 4 metres fall into the 40% GST slab.
It sounds like bad news, but here’s the twist: earlier, these cars were at 28% + cess (which added up to 45–50%). So, in a way, the reform softens the blow. But don’t expect luxury car dealers to hand out discounts. Most are likely to tweak prices so the sticker shock remains intact.
Premium motorcycles above 350cc—think Harley-Davidson or Triumph—also fall into the 40% net.
EVs Stay Untouched at 5%
The safest bet in this shuffle? Electric vehicles. The GST on EVs continues at 5%, whether it’s a humble Tata Tiago EV or a high-end Tesla.
That stability matters. Had the government raised EV taxes, it would have slowed adoption. By keeping it steady, the EV industry still has the incentive edge, even if small petrol cars suddenly look more tempting.
Everyday Buyers: The Real Trade-Off
Here’s the real question—will you stick to an EV or consider a cheaper small petrol car?
On paper, EVs are still way cheaper to run. But with the price drop in small ICE vehicles, buyers might hesitate. After all, if the upfront difference between a Nexon EV and Nexon petrol is a few lakhs, GST savings make petrol look attractive again.
This is where numbers matter more than gut feel. To be fair, it’s hard to judge just by percentages. If you really want to see what makes sense for you, check out the EV Savings Calculator by eVehicle India.
It’s a neat little tool—plug in your daily kilometres, fuel cost, electricity rate, and it instantly shows you annual savings, break-even years, even how much CO₂ you’d cut. Handy if you’re on the fence about EV vs petrol after these GST tweaks.
| Vehicle Type / Segment | Previous Tax (GST + Cess) | New Tax (from Sept 22, 2025) | Impact on Price |
|---|---|---|---|
| Small petrol cars (≤1200cc, ≤4m) | 28% + 1–3% cess ≈ 29–31% | 18% GST | Significant drop — cheaper by ~₹10k–₹50k |
| Small diesel cars (≤1500cc, ≤4m) | 28% + ~3% cess ≈ 31% | 18% GST | More affordable; festive push likely |
| Motorcycles ≤350cc, three-wheelers, ambulances | 28% + cess | 18% GST | Lower cost; broader access |
| Large cars & SUVs (>1200cc petrol / >1500cc diesel, >4m) | 28% + 17–22% cess ≈ 45–50% | 40% GST | Prices stay high; some models costlier |
| Premium motorcycles >350cc | 28% + cess ≈ 45% | 40% GST | Luxury segment feels the pinch |
| Electric Vehicles (all categories) | 5% GST | 5% GST | No change — EVs stay protected |
| Auto parts & accessories | 28% (varied by item) | 18% GST | Simplified; cheaper servicing |
Quick FAQs on GST and Cars
What is the new GST on cars?
Small cars and parts → 18%, luxury cars/SUVs → 40%, EVs → 5%.
Will cars above ₹10 lakh get costlier?
Yes, most mid-size and premium cars above ₹10 lakh fall under the 40% slab.
What is Tata Nexon’s GST rate now?
Petrol under 1200cc (≤4m) → 18%. Diesel or longer variants → 40%.
Do hybrids get any special benefit?
No, they follow the same slabs as regular ICE cars.
What about imported luxury cars like BMW or Audi?
They’ll face 40% GST plus import duties—so no major relief.
Final Thoughts
This GST reform feels like a calculated compromise. The government gave a breather to small car buyers, kept EVs in their sweet spot, and left luxury cars paying more.
Is it perfect? Probably not. But it sends a clear message: India wants affordable mobility and cleaner mobility first, luxury later.
