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Buying a car in India just became easier on your wallet. The 56th GST Council Meeting, held in September 2025, reshaped how GST on cars works. From 22 September 2025, car buyers no longer face confusing cesses and multiple tax layers. Instead, the revised GST system simplifies rates, lowers costs, and boosts affordability across segments. These changes not only benefit everyday buyers but also provide much-needed support to the automobile industry. If you plan to purchase a car soon, understanding the new GST rules could help you save significantly.
Here is a clear breakdown of the latest GST rates on cars so you can understand how much you’ll actually save:
Small cars with petrol engines up to 1,200cc or diesel engines up to 1,500cc now attract 18% GST
The earlier rate of 28% plus a 1–3% cess has been removed for this category
This revised slab mainly covers hatchbacks and compact sedans popular among first-time buyers
Entry-level hybrid vehicles also qualify for this reduced GST rate, making them more affordable
Here is a quick look at the new GST rate for luxury cars and large hybrids so you know the exact cost impact:
Luxury cars and large hybrids above small car specifications now fall under a 40% GST rate
The earlier structure of 28% GST plus a 15–22% cess has been replaced
This slab specifically targets premium sedans, large SUVs, and luxury hybrid models
There is no separate cess under this system, as the tax is fully consolidated
Here is why the GST rate on electric vehicles makes them one of the most cost-effective options for new buyers:
Electric vehicles continue to attract a low GST rate of just 5%
This rate is significantly lower than the slabs for petrol, diesel, and hybrid cars
The reduced tax directly lowers the upfront purchase cost of EVs for buyers
It also supports the government’s push towards cleaner and greener mobility in India
Here is a simple breakdown of the GST rate on commercial vehicles and three-wheelers to help you plan business or personal purchases:
Commercial vehicles, including trucks and buses, now attract an 18% GST rate
Passenger three-wheelers such as auto-rickshaws also fall under this tax slab
The uniform rate simplifies taxation across both goods and passenger transport vehicles
This change reduces compliance complexity for small businesses and fleet owners
Here is a side-by-side comparison of old and new GST rates on vehicles to help you see exactly who benefits the most:
| Category | Old GST + Cess | New GST (Sept 2025) | Impact for Buyers |
|---|---|---|---|
Small Petrol/Diesel Cars |
28% + 1–3% cess |
18% |
Major relief for hatchbacks and compact sedans, making them more budget-friendly |
Large Cars, SUVs & Luxury |
28% + 15–22% cess |
40% |
Consolidated tax structure, but premium vehicles remain costly |
Electric Cars (EVs) |
5% |
5% |
No change, keeping EVs the cheapest option tax-wise and encouraging green adoption |
Commercial Vehicles & Three-Wheelers |
28% |
18% |
Lower costs for businesses, fleet owners, and auto-rickshaw buyers |
Here is a clear explanation of how GST on cars is now calculated, making it easier for you to understand the savings:
Basis of Calculation: GST is applied on the ex-showroom price of the vehicle, which directly influences the final on-road cost
Simplified Structure: With the removal of most cesses, the tax calculation has become easier and more transparent
Example – Small Hatchback: A car priced at ₹5 lakh earlier attracted around ₹1.45 lakh in GST plus cess. Under the new 18% slab, the tax falls to just ₹90,000
Impact on Buyers: This change not only lowers the car’s base price but also reduces add-ons like insurance premiums and road tax, as both are calculated on the ex-showroom value
Here is how the new GST structure impacts the market and benefits you as a buyer:
Small and compact cars now cost less, with savings sometimes crossing ₹1 lakh, making them more accessible for first-time buyers.
A single 40% GST slab simplifies taxes on premium cars and SUVs, offering clearer pricing despite the high rate.
EVs continue to benefit from just 5% GST, encouraging more people to choose cleaner and greener mobility.
A transparent tax system helps dealers and manufacturers maintain compliance while giving you greater clarity in car prices.
Automotive brands have cut prices and launched offers to pass on the GST savings directly to customers.
India’s GST framework includes special provisions on car purchases to ensure inclusivity, fairness, and financial relief where needed.
Cars designed or adapted for persons with disabilities enjoy reduced GST or full exemption, lowering tax from 28% to 18% with no cess.
To qualify, buyers must present a medical certificate confirming disability, and the vehicle must meet limits on engine size and length.
An affidavit is required stating the vehicle will not be sold within five years of purchase to continue receiving the concession.
The Ministry of Heavy Industries issues GST exemption certificates through an online portal, streamlining the process for eligible buyers.
Purchasing a used car from an unregistered dealer does not attract GST, as these transactions fall outside the GST framework. However, when you buy from a registered dealer, GST may apply but only on the margin or value added by the dealer, rather than the entire selling price. This approach prevents double taxation, keeps second-hand vehicles affordable, and ensures fairness between registered and unregistered sellers in the used car market.
Imported cars face a much heavier tax burden due to the combined effect of Integrated GST (IGST), basic customs duty (BCD), and the Agriculture Infrastructure and Development Cess (AIDC). Since IGST is applied on the assessable value after adding customs duties, the overall tax significantly inflates the cost of imported vehicles compared to those manufactured in India.
For luxury imports, a compensation cess of up to 22% may also apply, pushing total indirect taxes close to 50% of the car’s value. This structure is designed to regulate high-end imports while protecting and promoting domestic automobile manufacturing.
The September 2025 GST reforms on cars bring a streamlined and consumer-friendly tax structure. By reducing rates on small and hybrid vehicles, maintaining support for electric cars, and consolidating luxury segment taxes, the reforms ensure greater affordability. They also encourage market growth and create a more transparent pricing environment for car buyers and industry stakeholders.
As per Section 17-5 of the CGST Act, car GST is not refundable.
GST is included in the ex-showroom price along with the car’s factory price. The on-road price on the other hand includes the ex-showroom price along with the registration charges, road tax and the cost of insurance.
If you are buying a used car, the GST would be applicable on the differential margin that exists between the selling price and the purchase price of the car.
To promote the usage of electric cars, the government has introduced Section 80 EEB which offers a tax exemption of ₹1.5 Lakhs on the loan taken to purchase the EV. Other than this, the government has also slashed the electric vehicle GST rate to 5% which was 12% earlier.
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