GST on cars in India is currently 18% for eligible small cars and 40% for large cars, SUVs, and luxury vehicles after the September 2025 GST reforms. The government reduced the GST rate for eligible small cars from 28% to 18% and simplified the tax structure for larger vehicles.
Electric vehicles continue to attract a concessional GST rate of 5% under the current GST system. The revised structure removed the earlier compensation cess system, where additional cess was charged along with the standard GST rate based on vehicle category.
The new GST slabs provide a clearer tax framework for different car categories and help buyers understand applicable rates. This guide explains the current GST on cars in India, category-wise slabs, GST calculation, the impact of the 2025 reforms, GST on used cars, and Input Tax Credit rules for car purchases in 2026.
Key Takeaways
- GST on cars in India is now 18% for small cars, 40% for large cars/SUVs/luxury cars, and 5% for electric cars.
- The compensation cess has been removed, making car taxation simpler.
- GST depends on the vehicle category, engine size, and length, not only the car price.
- Small car buyers get major benefits due to the reduced GST rate.
- SUVs and luxury cars also became more affordable because of cess removal.
- Used car GST applies mainly when dealers sell vehicles and is charged on their profit margin.
- GST Input Tax Credit on cars is allowed only for certain business uses, not personal purchases.
What is the GST Rate on Cars in India?
Following the September 2025 GST reforms, the GST rate on cars in India depends on the vehicle’s size, engine capacity, and type. Cars now fall under two main GST slabs, along with a concessional rate for electric vehicles.
Here are the current GST rates on cars:
| Type of Car | GST Rate |
| Small cars (petrol ≤1200cc, diesel ≤1500cc, length ≤4000mm) | 18% |
| Large cars, SUVs, and luxury vehicles | 40% |
| Electric cars | 5% |
Note: No compensation cess applies to cars under the current structure, so these rates are the total GST you pay. This means buyers do not need to add any separate compensation cess amount while calculating the GST on cars.
New GST Rates on Cars After the September 2025 Reform
The September 2025 reform, part of GST 2.0, simplified car taxation by replacing the old structure with two slabs and removing the cess. This change affected both the applicable rates and the method used to calculate the total tax.
The table below presents the complete car GST rate list and compares the old structure with the new one:
| Vehicle Category | Old Rate (GST plus Cess) | New GST Rate |
| Petrol, LPG, or CNG cars up to 1200cc and a length of up to 4000mm | 28% plus 1% cess | 18% |
| Diesel cars up to 1500cc and a length of up to 4000mm | 28% plus 3% cess | 18% |
| Larger or luxury cars beyond the above limits | 28% plus 15 to 22% cess | 40% |
| Petrol hybrid up to 1200cc and length up to 4000mm | 28% plus 1% cess | 18% |
| Petrol hybrid above the small car limits | 28% plus 15 to 22% cess | 40% |
| Diesel hybrid up to 1500cc and a length up to 4000mm | 28% plus 3% cess | 18% |
| Diesel hybrid above the small car limits | 28% plus 15 to 22% cess | 40% |
| Electric vehicles (all categories) | 5% | 5% |
Note: The GST rate for electric vehicles remains unchanged at 5% because the government continues to support EV adoption through a lower tax rate. The reform focused on simplifying other vehicle categories while maintaining existing benefits for electric mobility.
GST on Small Cars vs Luxury Cars
The current GST structure applies different tax rates to small cars and larger vehicles based on their size, engine capacity, and category:
| Basis | Small Cars | Large and Luxury Cars |
| GST rate | 18% | 40% |
| Earlier effective tax rate | 29% to 31% (28% GST + 1% to 3% cess) | Up to 50% (28% GST + 15% to 22% cess) |
| Eligibility criteria | Petrol engine up to 1200cc, diesel engine up to 1500cc, and a length up to 4000mm | Exceeds any small-car eligibility limit |
| Examples | Maruti Swift, Tata Punch, Hyundai i20, and Wagon R | Hyundai Creta, Tata Harrier, luxury sedans, and SUVs |
| Overall impact | Prices reduced by around 10% to 12% | Overall tax reduced due to cess removal |
Note: Even though luxury cars now show a higher 40% headline rate, the removal of the cess means the total tax on them has fallen.
HSN Code and Applicable GST Rates for Cars
Cars are classified under specific HSN codes in the GST system, which helps determine their tax treatment. Passenger cars fall under HSN code 8703, which covers motor vehicles designed mainly for transporting people. You can verify HSN code 8703 and its applicable GST rate using a free HSN code finder.
The applicable GST rate under HSN code 8703 depends on the vehicle category. Small cars attract 18% GST, while large cars, SUVs, and luxury vehicles attract 40% GST. The current GST structure does not apply any compensation cess on cars.
Note: Although all passenger cars use HSN code 8703, the GST rate varies according to the vehicle’s size, engine capacity, and type. The GST system has also simplified compliance for the automobile sector by applying a uniform 18% GST rate on auto components.
GST Impact on Car Prices: Brand-Wise Savings
Manufacturers passed the GST reduction benefit to buyers from 22 September 2025. The tables below show the maximum savings available on selected models from major car manufacturers after the GST reduction:
1. Tata Price Benefit After the GST Reduction:
| Model | Benefit Up to |
| Nexon | ₹1,55,000 |
| Safari | ₹1,45,000 |
| Harrier | ₹1,40,000 |
| Altroz | ₹1,10,000 |
| Punch | ₹85,000 |
| Tigor | ₹80,000 |
| Tiago | ₹75,000 |
| Curvv | ₹65,000 |
2. Maruti Suzuki Price Benefit After the GST Reduction:
| Model | Benefit Up to |
| Brezza | ₹1,12,700 |
| Fronx | ₹1,12,600 |
| Grand Vitara | ₹1,07,000 |
| Dzire | ₹87,700 |
| Swift | ₹84,600 |
| Wagon R | ₹79,600 |
| XL6 | ₹52,000 |
| Ertiga | ₹46,400 |
3. Mahindra Price Benefit After the GST Reduction:
| Model | Benefit Up to |
| Scorpio N | ₹1,45,000 |
| XUV700 | ₹1,43,000 |
| Thar Roxx | ₹1,33,000 |
| Bolero | ₹1,27,000 |
| Scorpio Classic | ₹1,01,000 |
Disclaimer: Customers should confirm the final price benefit and applicable offers with their authorized dealership before making a purchase.
How Does the GST Change Affect Car Prices?
The 2025 GST reforms have reduced car prices across different vehicle categories. However, the level of savings varies based on the car’s size, engine capacity, and applicable GST rate. Here is how it affects prices:
- Small cars: Eligible small cars now attract 18% GST instead of the earlier effective 29% to 31%, reducing buyer costs significantly.
- Large cars and SUVs: The removal of compensation cess lowered the effective tax burden from nearly 50% to 40%.
- Luxury cars: Luxury vehicle buyers benefit from lower overall taxes after the removal of the compensation cess, resulting in higher savings in value terms.
- Electric cars: EVs continue to attract the lowest GST rate of 5%, supporting more affordable electric mobility.
Note: The GST is applied to the ex-showroom price, which is the factory price + dealer margin + freight charges. The final on-road price also includes road tax, registration, and insurance, which vary by state and are charged separately.
GST on Used and Second-Hand Cars
GST also applies to the sale of used cars, but the rules are different from new cars and depend on who is selling. The tax is charged only in specific cases. Here is how it works:
- Sold by a registered dealer: A registered dealer pays GST only on the profit margin earned from the sale. The margin is calculated as the difference between the purchase price and the selling price. The applicable GST rate is charged on this margin, not the full vehicle value.
- Sold between individuals: When one individual sells a car to another and neither is a registered dealer, no GST applies to the sale.
- No margin, no GST: If a dealer sells a used car at a loss, meaning there is no positive margin, no GST is payable on that sale.
Note: The margin scheme avoids double taxation because GST applies only to the dealer’s profit margin, not the entire car value. This provision keeps the tax liability lower and makes pre-owned cars more cost-effective for buyers.
Can You Claim GST Input Tax Credit on a Car?
Input Tax Credit (ITC) allows a GST-registered business to claim credit for the GST paid on eligible purchases. However, the availability of ITC on cars is subject to restrictions and mainly depends on the purpose for which the vehicle is used.
The key provisions are as follows:
- Personal use is restricted: Under Section 17(5) of the CGST Act, ITC on cars is not available when the vehicle is purchased for personal use. This restriction generally applies to motor vehicles with a seating capacity of up to 13 persons.
- Passenger transportation services: Businesses that use cars to provide passenger transportation services, such as taxi or cab operators, are eligible to claim ITC.
- Transportation of goods: Businesses using vehicles for the transportation of goods can claim ITC, subject to applicable GST provisions.
- Vehicle resale by dealers: Automobile dealers who purchase cars as inventory for resale are eligible to claim ITC on such vehicles.
- Driving schools: Driving schools that use cars to provide driving training can claim ITC on eligible vehicle purchases.
Note: A business cannot claim ITC merely because it purchases a car in its business name or uses the vehicle occasionally for business purposes. The vehicle must be used for one of the specifically permitted purposes under Section 17(5) of the CGST Act.
GST Exemptions and Concessions on Cars
Although most cars attract GST at standard rates, certain categories of vehicles qualify for exemptions or concessional rates due to specific policy objectives. These benefits are designed to support particular users and promote certain sectors.
The major concessions include:
- Ambulances: Ambulances are taxed at a concessional GST rate of 18%, providing cost benefits to healthcare providers and institutions.
- Electric cars: Electric vehicles attract GST at 5%, which is the lowest GST rate applicable to cars, as part of efforts to encourage cleaner transportation.
- Used cars sold without profit margin: When a used car dealer sells a vehicle without any profit margin, the transaction does not attract GST.
- Vehicles for persons with disabilities: The earlier GST concession certificate scheme for specially designed vehicles for orthopedically disabled buyers has been discontinued. The GST Exemption Certificate Scheme (GECS) for vehicles was stopped after the standard tax structure was introduced for these vehicles.
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