GST on Cars and Two-Wheelers: How Different Categories of Vehicles Are Taxed in India

The Indian government is considering a major GST overhaul, potentially reducing the tax on cars and 2-wheelers from 28% to 18%. With the festive season approaching, this could significantly lower vehicle costs and improve affordability for many buyers. 

Here's a closer look at how GST and cess are currently applied across various vehicle segments in India.

GST and Cess: Current Tax Structure on Vehicles

India follows a tiered GST system, currently imposing 5%, 12%, 18% or 28% on goods and services. For vehicles, the base GST typically stands at 28%, with additional cess ranging from 1% to 22% depending on engine size, fuel type, and length. Smaller and more efficient vehicles tend to attract lower effective tax rates, whereas larger, luxury and performance models are taxed heavily, even up to 50%.

Electric and Eco-Friendly Vehicles

Electric vehicles are taxed at a minimal 5% GST with no compensation cess, promoting cleaner mobility. Hydrogen fuel-cell powered vehicles attract 12% GST with no cess. These categories enjoy the lowest tax burden among all vehicle segments.

2-Wheelers: Entry to Premium

2-wheelers with engine displacement up to 350cc carry 28% GST with no cess, while those above 350cc attract 28% GST plus 3% cess, totalling 31%. A potential rate cut could bring significant respite to first-time buyers seeking affordable mobility.

Passenger Cars: Small, Mid-Size & SUVs

Cars up to 4 metres with engine capacity up to 1,200cc (petrol) or 1,500cc (diesel) incur 28% GST plus 1% or 3% cess depending on the fuel type. This totals 29% and 31% respectively. Larger vehicles with engine size exceeding 1,500cc are taxed at 45% (28% GST + 17% cess), while SUVs with high ground clearance face up to 50% tax (28% GST + 22% cess).

Read More: GST Rate Cuts Expected: Cement, 2-Wheeler, FMCG & Consumer Durable Stocks That Could Gain from New Tax Reforms!

Hybrids, Three-Wheelers and Commercial Vehicles

Small hybrids up to 4 metres are taxed at 28% GST with no cess, while larger hybrids attract a 15% cess. All three-wheelers, irrespective of fuel type, are taxed flat at 28% with no cess. Passenger carriers with 10 to 13 seats incur 28% GST plus 15% cess, whereas commercial goods and larger passenger vehicles over 13 seats have no cess but a fixed 28% GST.

Conclusion

The proposed GST reform could lower acquisition costs for several vehicle categories, especially small cars and 2-wheelers. Electric and hybrid vehicles already enjoy lower GST rates, helping them gain traction. However, luxury models and SUVs will likely remain under higher tax brackets even after the planned rationalisation.

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