What is the minimum GST rate applied to cars in India?

The minimum GST rate applied to cars in India is 5%, though this typically applies to specific vehicle types. Most other categories, however, have higher rates depending on factors like engine size and fuel type.

What factors determine the GST rate on cars in India?

The GST rate on cars varies based on several factors, including the type of fuel (petrol, diesel, or electric), the vehicle’s engine capacity, and its purpose or segment (such as compact cars, SUVs, or luxury vehicles). These criteria ensure GST is applied fairly across different car categories.

Can GST paid on car purchases be refunded?

No, the GST paid on car purchases cannot be refunded. According to Section 17-5 of the Central Goods and Services Tax (CGST) Act, GST on cars is not eligible for a refund, whether purchased for personal or business use.

What are the exceptions for Input Tax Credit (ITC) on GST paid for cars?

The Input Tax Credit (ITC) on GST for cars is restricted, with few exceptions. ITC is allowed only when the vehicle is an essential part of the supply chain, such as in transportation or logistics, or when the car is used for specific business purposes that meet ITC criteria.

Are electric vehicles taxed at the same rate as other cars?

No, electric vehicles are subject to a lower GST rate of 5% to encourage eco-friendly transportation. This reduced rate is a government incentive to promote cleaner energy and reduce emissions in the automobile sector.

Can second-hand car dealers claim GST refunds or benefits?

Second-hand car dealers can benefit from a different GST calculation. The GST is applied only on the margin between the buying and selling price, effectively reducing the GST burden for these dealers. However, no direct GST refund is applicable on second-hand car transactions.

Which cars will come under 40% GST?

In India, cars in the 40% GST slab include large, mid-size, luxury, and bigger hybrid or SUV cars. This rate, starting September 22, 2025, replaces the former total tax, which frequently varied between 43% and 50%.

GST on Cars in India: Tax Rate, Impacts & Calculations

Understanding GST on car is crucial because it has a considerable impact on the final on-road pricing since tax slabs and cess rates vary by vehicle category. Under the older GST system, most cars were subject to the highest tax rate of 28%, with an extra compensation cess ranging from 1% to 22% depending on engine size, body style, and category.

However, in September 2025, new GST rates were introduced. Certain vehicles, such as electric cars, ambulances, and specially designed accessible vehicles, are taxed at a reduced rate to promote sustainability and public welfare.

This guide covers the most recent GST on vehicles in India, including revised tax rates, exclusions, and how GST is calculated today.

Key Takeaways

Simplified Slabs: The 2025 GST 2.0 reform has categorised cars into two primary tax slabs: 18% for small cars and 40% for large/luxury vehicles, replacing the complex "28% + Cess" structure.

Electric Vehicles: EVs continue to enjoy the lowest tax rate of 5% to promote green mobility.

Price Reduction: Small petrol and diesel cars have seen significant price drops as their effective tax burden fell from ~29-31% to a flat 18%.

Luxury Tax: Premium SUVs and luxury sedans are now taxed at a flat 40%, eliminating the variable cess (which previously ranged up to 22%).

What Is GST on Cars?

Goods and Services Tax (GST) on cars is an indirect tax applied to the manufacturing and sale of vehicles. Following the GST Reform 2.0 in September 2025, the taxation structure for automobiles was radically simplified.

Previously, cars were taxed at 28% plus a variable compensation cess. Under the GST 2.0, cars fall into three clear buckets:

5%: Electric Vehicles (EVs).

18%: Small cars (Compact sedans, hatchbacks) and Commercial Vehicles (Trucks, Buses).

40%: SUVs, Luxury cars, and large Hybrids.

This streamlined system aims to reduce vehicle prices for the common man while maintaining higher taxes on "sin goods" or luxury items.

Car GST Rate List in India

Vehicle Category	Previous GST Rate	New GST Rate (2025 Reform)
Petrol, LPG, or CNG vehicles up to 1200 cc and ≤ 4000 mm	28% + 1% cess	18%
Diesel vehicles up to 1500 cc and ≤ 4000 mm	28% + 3% cess	18%
Passenger cars not covered under the above categories	28% + 15–22% cess	40%
Hybrid (spark-ignition + electric) up to 1200 cc and ≤ 4000 mm	28% + 1% cess	18%
Hybrid (spark-ignition + electric) over 1200 cc or > 4000 mm	28% + 15–22% cess	40%
Hybrid (compression-ignition + electric) up to 1500 cc and ≤ 4000 mm	28% + 3% cess	18%
Hybrid (compression-ignition + electric) over 1500 cc or > 4000 mm	28% + 15–22% cess	40%
All categories of electric vehicles (EVs)	5%	5%

NOTE: The list above is subject to change based on regulatory updates and is determined by the vehicle’s size and fuel type.

Impact of GST on the Indian Automobile Industry

The introduction of GST has had a profound impact on the automobile industry, benefiting various stakeholders, including end consumers, car dealers, and manufacturers.

End consumers: The implementation of GST has led to a significant reduction in tax rates on motor vehicles compared to the previous tax system. This has resulted in lower overall costs for consumers when purchasing cars, making them more affordable than before.

Car dealers: Car dealers have also experienced a positive shift with the implementation of GST. Prior to its introduction, dealers struggled with the complexities of VAT and excise duties, which often created challenges in managing tax credits. However, under the new GST framework, car dealers can now claim input tax credits on the tax paid during car purchases. This simplification of the tax process has made it easier for dealers to manage their operations, improving cash flow and profitability.

Manufacturers: The automobile sector has benefited greatly from GST, as it has reduced the overall cost of manufacturing. The previous system involved multiple layers of taxation, leading to cascading taxes that increased production costs. With GST, manufacturers can avail of tax credits on raw materials and components, streamlining the production process and reducing costs. This has enhanced efficiency in the manufacturing sector, benefiting the entire supply chain.

Also Read More About GST on Mobile Phones

How GST is Calculated on Vehicles?

Calculating GST on cars is now more straightforward as the separate "Cess" component has been removed for most categories.

Formula:

Total Tax = Ex-Showroom Price \times GST Rate

Example (Post-2025 Reform):

Consider a small petrol hatchback (under 1200cc, < 4000 meters) with an ex-showroom price of ₹5,50,000. Under the new rules, the applicable GST rate is 18%.

Base Price: ₹5,50,000

GST (18%): ₹99,000

Final On-Road Tax Component: ₹99,000

Total Price (before Insurance/Road Tax): ₹6,49,000

Comparison: Under the old system (29%), the tax would have been ₹1,59,500. The new system saves the buyer approximately ₹60,500 in taxes.

Exemptions for GST on Cars

To promote sustainability, essential services, and accessibility, the Indian government offers reduced GST rates and specific reductions on certain vehicle classifications. These exemptions reduce the overall cost of ownership for qualified customers:

Electric vehicles (EVs): EVs continue to have a much lower GST rate of 5%, promoting a transition towards greener and more energy-efficient transportation choices.

Ambulances (18% GST): Ambulances are subject to a concessional 18% GST, which helps medical institutions manage the costs connected with emergency and hospital transport services.

Used or Pre-Owned Cars: Margin-Based GST: GST is imposed solely on the dealer's profit margin on used cars, not the entire transaction amount. If the selling price is less than the buying price, no GST is charged, making the used automobile market more affordable.

Vehicles for Persons with Disabilities: Special Concessions: Custom-built or modified cars for disabled individuals are eligible for GST exemption, which lowers the purchase price while boosting accessibility and mobility for those who rely on these changes.

GST Calculation On Cars After The New Tax Structure

The basic formula to determine GST on cars in India is:

Total GST = Ex-Showroom Price × Applicable GST Rate

Let’s consider an example of a diesel Car up to 1500cc and ≤ 4000 mm.

Particulars	Old GST Rate	New GST Rate (2025)
Ex-Showroom Price	₹7,00,000	₹7,00,000
GST @28%	₹1,96,000	–
Cess @3%	₹21,000	–
GST @18%	–	₹1,26,000
Total Taxes	₹2,17,000	₹1,26,000
On-Road Price	₹9,17,000	₹8,26,000

GST on Used and Second-Hand Cars

For dealers dealing in used cars, GST is calculated on the difference between the buying price and selling price, effectively reducing the tax burden. This provision ensures that if the transaction margin is negative, dealers are exempt from paying GST on car sales. This exemption simplifies the taxation process for second-hand vehicles and encourages a smoother resale market.

Additionally, individuals purchasing used cars from unlisted or unregistered sellers are exempt from paying GST on the transaction, providing relief to buyers in the pre-owned vehicle market.

Conclusion

India's GST structure for cars has undergone major changes, which took effect in September 2025, simplifying tax slabs and increasing transparency in vehicle pricing.

Small and medium-sized petrol, diesel, and hybrid vehicles now have lower GST rates, while electric vehicles continue to benefit from the lowest rate of 5%, hence boosting India's green mobility objectives. Luxury and high-end cars continue to be taxed more heavily, but the new framework provides tax transparency and predictability.

GST on Cars