Motorcycles Above 350CC May Attract 40% Tax

India’s automobile taxation framework is set for a major change with the Centre proposing a restructuring of the Goods and Services Tax (GST). According to the draft reform, motorcycles with engine capacities of 350cc and above may soon attract a special GST rate of 40%, significantly higher than the current 31% effective incidence. The plan, aimed at simplifying taxation and removing classification disputes, will be taken up for discussion at the GST Council meeting scheduled for September 3–4.

Current Tax Structure

At present, all luxury cars and motorcycles with an engine capacity of 350cc or more are taxed at 28% GST plus a 3% cess, bringing the total incidence to 31%. In comparison, luxury cars face a higher burden of up to 50% due to additional cess. For bikes with engines below 350cc, the GST rate is fixed at 28% without cess.

Proposed GST Changes

As per the new plan, the government wants to move to a simplified slab structure. Automobiles (excluding tractors) will fall under just 2 categories:

• 18% GST for small cars and two-wheelers with engines below 350cc.
• 40% GST for all larger cars and motorcycles above 350cc.

Officials say this simplification will make compliance easier and reduce disputes around classification in the automotive sector.

Impact on Market and Prices

If approved, motorcycles above 350cc would become costlier, provided manufacturers pass on the higher tax burden to consumers. Popular models such as the Royal Enfield Classic, Meteor, Hunter, and Honda H’ness fall within this higher category.

By contrast, motorcycles below 350cc, which form the bulk of India’s two-wheeler market, stand to benefit from a lower GST rate of 18%. According to the Society of Indian Automobile Manufacturers (SIAM), bikes in this category accounted for 97% of domestic two-wheeler sales in FY25, with volumes growing 5% year-on-year. Scooters, all of which are below 350cc, also recorded a 17% growth in FY25.

Beneficiaries and Losers

Royal Enfield could emerge as a major beneficiary if the new slabs are implemented. A significant part of its product range sits just below the 350cc mark, potentially giving it a tax advantage over competitors like Bajaj-Triumph and Hero-Harley, whose models exceed the limit.

However, the premium motorcycle segment above 350cc has also been growing strongly, expanding 32% in FY25 compared to FY24. An executive from a premium bike manufacturer noted that customer sentiment has been subdued since news of the tax hike surfaced, with many buyers postponing purchases.

Broader Tax Restructuring

The proposal is part of a larger GST reform under which the existing rates of 12% and 28% would be abolished. Instead, the government aims to move towards a two-pillar structure of 5% and 18%, with a 40% special rate reserved for sin and luxury goods. Officials argue that the new design will help both the Centre and states offset revenue losses from lower standard rates.

Conclusion

If cleared, the GST revamp will reshape India’s motorcycle market by sharply dividing products based on engine capacity. While entry-level and mid-range bikes under 350cc may become more affordable, premium motorcycles face the risk of higher retail prices. The decision of the GST Council in early September will be crucial in determining how manufacturers and consumers adapt to this new tax regime.

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