What is GST on cars?
GST is a tax you pay when you buy goods and services in India. For cars, it is added to the ex-showroom price (factory cost + dealer margin + freight, before road tax and insurance).
Earlier, car buyers also paid an extra cess (1%–22%) on top of 28% GST. That’s why the final on-road price was always much higher than the sticker price in ads.
Now, the cess has been removed, making things simpler.
The New GST Rates on Cars (Effective September 22, 2025)
Until now, car buyers had to deal with a 28% GST rate plus an extra cess (1%–22%), which made things messy and unpredictable. The government has now simplified the system by removing the cess completely and introducing different slabs.
Small petrol cars (under 4m, up to 1200cc engine)
These are India’s most popular cars, compact hatchbacks, and small SUVs that families often buy as their first vehicle. Examples include the Maruti Alto, Swift, Wagon R, Baleno, Hyundai i20, Tata Punch, Renault Kwid, and Kia Sonet (petrol sub-4m).
A car priced at ₹6 lakh earlier had around 29% tax, pushing up the cost significantly. Now, at 18%, buyers save close to ₹60,000–₹80,000. For middle-class families, this is a huge win and makes cars like Swift, Punch, i20, and Wagon R far more affordable.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Small petrol cars, CNG, LPG | 28% | 1% | 29% | 18% | 18% | 11% lower than before |
Small diesel cars (under 4m, up to 1500cc engine)
Diesel options in this range are fewer but still popular in compact SUVs. Examples include Tata Nexon diesel, Kia Sonet diesel, Mahindra XUV 3XO, Kia Syros diesel.
A ₹10 lakh diesel compact SUV earlier attracted a 31% tax. Now at 18%, the effective savings are ₹1.2–1.3 lakh. This makes diesel small SUVs much more attractive for long-distance drivers who prefer better fuel efficiency.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Small diesel cars | 28% | 3% | 31% | 18% | 18% | 13% lower than before |
Mid-size cars (above 4m, up to 1500cc engines)
This category includes popular family sedans and SUVs that are slightly larger but not full-sized. Examples are Hyundai Creta, Kia Seltos, Maruti Ertiga, Volkswagen Virtus, Skoda Slavia, and Honda City.
Although GST has increased from 28% to 40%, the removal of cess means the overall tax is now lower. On a ₹15 lakh car like the Creta or Seltos, this translates to savings of around ₹70,000–80,000.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Mid-size cars | 28% | 17% | 45% | 40% | 40% | 5% lower than before |
SUVs (above 4m, larger than 1500cc engine, and more than 170mm ground clearance)
SUVs are booming in India, but they were taxed the highest earlier. Examples include Toyota Fortuner, Mahindra Scorpio N, Mahindra XUV700, MG Gloster, and Jeep Compass.
Big SUVs were earlier taxed at 50%. Now at 40%, the drop is significant. On a ₹30 lakh SUV like the Toyota Fortuner, buyers can save around ₹3 lakh. That makes premium SUVs slightly easier to afford.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| SUVs | 28% | 22% | 50% | 40% | 40% | 10% lower than before |
Electric vehicles (EVs)
The government wants to encourage clean mobility, so EVs continue with the lowest tax rate. Examples include Tata Tiago EV, Tata Nexon EV, MG Comet EV, and Mahindra XUV400.
Budget EVs remain at 5% GST. This ensures models like the Tata Tiago EV or MG Comet stay affordable. However, luxury EVs such as Tesla Model 3, BMW iX, and Mercedes EQC could face higher tax rates in the future.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Budget EVs | 5% | 0 | 5% | 5% | 5% | No change |
Hybrid cars (Mild and Strong Hybrids)
Hybrid cars run partly on fuel and partly on electricity. Earlier, mild hybrids and strong hybrids were taxed differently, which created confusion among buyers. With the new GST structure, the slabs are more straightforward.
- Small hybrid cars (under 4 metres, engine up to 1200 cc for petrol or 1500 cc for diesel) now attract 18% GST instead of the earlier 28%. This is a big win for buyers, making such cars considerably cheaper.
- Mid-size and large hybrids (above 4 metres or with larger engines) fall under the 40% GST slab. Earlier, they were taxed at 43% (28% GST + 15% cess). So now, buyers save about 3%.
Examples include Toyota Innova Hycross Hybrid, Honda City Hybrid, Toyota Hyryder Hybrid, and Maruti Grand Vitara Hybrid. On a ₹20 lakh hybrid car, the savings are around ₹60,000 compared to earlier. While not massive, this reduction makes hybrids a more attractive option for eco-conscious buyers.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Small Hybrid Cars (≤ 4,000 mm, ≤ 1200 cc petrol / ≤ 1500 cc diesel) | 28% | 0–3% | Around 29–31% | 18% | 18% | 10–13% lower than before |
| Mid & Large Hybrid Cars (> 4,000 mm, > 1200 cc petrol / > 1500 cc diesel) | 28% | 15% | 43% | 40% | 40% | 3% lower than before |
Luxury cars
Luxury sedans and SUVs used to attract the highest cess on top of GST, making them extremely expensive. Examples are BMW 3 Series, Audi A4, Mercedes C-Class, and Jaguar XE.
On a ₹60 lakh luxury sedan, this could mean savings of ₹4–6 lakh. While still pricey, luxury cars are slightly less punishing on the wallet than before.
| Category | Old GST | Old Cess | Old Total Tax | New GST | New Total Tax | Change in Tax |
| Luxury cars | 28% | 20–22% | 48–50% | 40% | 40% | 8–10% lower than before |
Old vs New GST: Key Differences
| Car Type | Old Total Tax | New Total Tax | Change in Tax | Typical Saving |
| Small petrol, CNG, LPG cars | 29% | 18% | 11% lower | ₹60,000–80,000 |
| Small diesel cars | 31% | 18% | 13% lower | ₹1.2–1.3 lakh |
| Small hybrid cars (≤ 4m, ≤ 1200cc petrol / ≤ 1500cc diesel) | ~29–31% | 18% | 10–13% lower | ₹1–1.3 lakh |
| Mid & large hybrid cars (> 4m, > 1200cc petrol / > 1500cc diesel) | 43% | 40% | 3% lower | ₹50,000–60,000 |
| Mid-size cars | 45% | 40% | 5% lower | ₹70,000–80,000 |
| SUVs | 50% | 40% | 10% lower | ₹2.5–3 lakh |
| EVs (budget models) | 5% | 5% | No change | No change |
| Luxury cars | 48–50% | 40% | 8–10% lower | ₹4–6 lakh |
Advantages of the new GST rates
Some pros of the new GST rates are as follows:
- Small and mid-size cars become cheaper
- Easier system with fewer slabs
- Could boost car sales during the festive season
- Encourages more people to buy EVs
Disadvantages of the new GST rates
The following are the cons of the new GST rates
- Luxury cars and SUVs are still expensive
- Luxury EVs may see higher taxes later
- States may lose revenue, which could affect implementation
- Imported cars remain unaffordable due to customs duties
How GST is calculated on cars
Here’s the step-by-step:
- Start with the ex-showroom price (factory price + dealer margin + transport).
- Add GST (now 18% for small cars, 40% for big cars, 5% for EVs).
- Add road tax, registration, insurance, and handling charges.
- That gives you the on-road price.
Earlier, an extra cess was added too. Now it’s gone, which makes the system cleaner.
What about imported cars?
Imported cars still attract very high customs duties (70% or more). On top of this, GST is applied.
So even though GST has been simplified, imported cars will continue to remain very expensive.
Should you buy a car now?
Buying a car is often about timing, and with the new GST rates, here’s how you should decide:
Small and mid-size cars
This is the best time in years to buy a small or family car. With GST cut from 28% + cess to 18%, you save 10–12% straight away. For example, a car priced at ₹8 lakh could now cost around ₹7.1–7.2 lakh on-road. If you’re a first-time buyer or looking for a budget-friendly upgrade, don’t wait too long, as festive discounts from dealers will make the deal even sweeter.
SUVs and luxury cars
These are still heavily taxed, but with the cess gone, there is some relief at the higher end. For example, SUVs like the Hyundai Creta or Mahindra XUV700 could see small price cuts, while luxury brands may pass on limited benefits. If you’re looking at this segment, it’s best to negotiate with dealers for additional discounts or freebies since GST cuts alone won’t make a big difference.
Hybrid and Electric Vehicles (EVs)
Hybrids and EVs are the greener options. Hybrids, which use both an engine and an electric motor, are now slightly cheaper with the tax cut (40% vs 43% earlier). For cars like the Toyota Hyryder Hybrid or Honda City Hybrid, you could save around ₹50,000–60,000. If you do a lot of city driving and want better mileage without worrying about charging, a hybrid is a smart buy.
EVs, on the other hand, continue at just 5% GST, making mass-market models like the Tata Tiago EV or the MG Comet EV very affordable. But for premium EVs such as Tesla or BMW iX, it may be wise to wait, as the government could increase GST for luxury EVs soon.
Final words
The new GST system is a win for middle-class car buyers. Small and mid-size cars are finally more affordable, which is likely to boost sales.
Luxury car buyers, however, won’t see much benefit, and imported cars will remain out of reach for most. If you’ve been waiting to buy a small or mid-size car, now is the perfect time, as your dream car just got cheaper.
Frequently asked questions
