GST on Cars, Bikes & EVs in India: New 2025 Rate Slabs Explained

Planning to buy a new car, bike, or EV in India? Understanding the GST rates for cars is crucial as it significantly impacts the final price you pay. The tax you see on your vehicle invoice isn’t a simple, flat rate. The GST on vehicles in India is a complex structure, combining the standard Goods and Services Tax (GST) with an additional Compensation Cess that varies widely depending on the vehicle’s type, engine size, length, and fuel type. This layered tax system can be confusing for both individual buyers and business owners trying to make an informed decision. With potential 2025 GST changes for EVs and other vehicles on the horizon, staying updated is more important than ever. This comprehensive guide will break down the current and expected GST rates for cars, bikes, and electric vehicles, helping you understand the tax implications and make smarter financial choices.

How is GST on Vehicles Calculated in India?

Before we dive into the specific rates for different vehicles, it’s essential to understand the basic building blocks of the tax calculation. The final tax isn’t a single percentage but is composed of two main elements: the base GST and an additional cess. This structure is the primary reason for the wide variation in vehicle prices across different segments in the country.

The Core Components: CGST, SGST, and IGST

The Goods and Services Tax is the fundamental tax applied to the ex-factory price of a vehicle. Depending on the transaction, it’s levied in one of two ways:

• CGST + SGST: For most vehicle purchases, which happen within the same state (an intra-state transaction), the total GST is split equally into two parts. Central GST (CGST) is collected by the Central Government, and State GST (SGST) is collected by the State Government. For example, if a car falls under the 28% GST slab, you will see 14% CGST and 14% SGST on your invoice.
• IGST: When a vehicle is purchased from a dealer in one state and registered in another (an inter-state transaction), a single tax called Integrated GST (IGST) is applied. The IGST rate is simply the sum of the CGST and SGST rates (e.g., 14% + 14% = 28% IGST). This tax is collected by the Central Government and later apportioned to the destination state.

The X-Factor: GST Compensation Cess

This is where vehicle taxation gets complicated. On top of the standard 28% GST that applies to most cars and two-wheelers, the government levies an additional tax called GST Compensation Cess. This cess was introduced to compensate states for any potential revenue loss they might incur due to the implementation of GST. While it was initially set for five years, it has been extended. This cess is not a small amount; it can range from as low as 1% for small petrol cars to as high as 22% for large SUVs and luxury vehicles. This additional levy is the single biggest factor contributing to the significant GST impact on car prices India, making larger vehicles substantially more expensive than their factory price would suggest.

A Detailed Look at the Current GST Rates for Cars

The combination of GST and Compensation Cess creates a multi-layered tax structure. The rates are primarily determined by the vehicle’s length, engine capacity (in cubic centimeters, or cc), and fuel type. Here is a clear breakdown of the current slabs.

Petrol & Diesel Cars (Small Cars)

This category is for compact hatchbacks and sedans that meet specific criteria, making them the most affordable from a tax perspective.

• Sub-segment: Cars with a length of less than 4 meters, a petrol engine capacity not exceeding 1200cc, or a diesel engine capacity not exceeding 1500cc.
• Tax Rate: 28% GST + Compensation Cess ranging from 1% to 3%.
  • Petrol Vehicles: 28% GST + 1% Cess (Total Tax: 29%)
  • Diesel Vehicles: 28% GST + 3% Cess (Total Tax: 31%)
• Examples: Popular models in this category include the Maruti Suzuki Swift, Hyundai Grand i10 Nios, Tata Punch, and Hyundai i20.

Mid-Size and SUV GST Rates for Cars India

This segment covers most of the popular sedans, compact SUVs, and large SUVs that dominate the Indian market. The cess rates here are significantly higher, which drastically increases the on-road price.

Vehicle Category	GST Rate	Compensation Cess	Total Tax Incidence
Engine > 1500cc (e.g., SUVs, luxury sedans)	28%	22%	50%
Engine ≤ 1500cc & Length > 4000mm & Ground Clearance ≥ 170mm	28%	20%	48%
Engine > 1200cc (Petrol) / > 1500cc (Diesel) & Length > 4000mm	28%	17%	45%

Examples: Vehicles like the Hyundai Creta, Kia Seltos, and Mahindra Scorpio fall into the 48% tax bracket. Larger SUVs like the Toyota Fortuner and Mahindra XUV700, along with luxury sedans from brands like Mercedes-Benz and BMW, attract the highest tax incidence of 50%.

GST on Two-Wheelers and Electric Vehicles

The tax structure for two-wheelers is simpler, while electric vehicles benefit from a special concessional rate to encourage their adoption.

Current New GST Rate Slabs Bikes India

The GST rate for motorcycles and scooters is primarily dependent on their engine capacity.

• Bikes/Scooters with Engine Capacity < 350cc:
  • Rate: 28% GST (No Compensation Cess).
  • Examples: This covers the vast majority of commuter bikes and scooters in India, such as the Hero Splendor, Honda Activa, and Bajaj Pulsar 150.
• Bikes with Engine Capacity > 350cc:
  • Rate: 28% GST + 3% Cess (Total Tax: 31%).
  • Examples: This includes performance and cruiser bikes like the Royal Enfield Classic 500, KTM 390 Duke, and Bajaj Dominar 400.

Concessional GST on Electric Vehicles India

To promote green mobility and reduce carbon emissions, the Indian government has provided a significant tax advantage for electric vehicles. This special rate makes EVs a much more attractive proposition from a tax standpoint.

• Rate for All EVs: A flat 5% GST is applicable on all electric vehicles, whether they are two-wheelers, three-wheelers, or four-wheelers.
• No Compensation Cess: EVs are completely exempt from the additional Compensation Cess.
• Impact: This results in a massive tax difference. For instance, where a large SUV attracts a total tax of 50%, a similarly priced electric SUV only attracts a 5% GST. This is a direct incentive for buyers to shift towards cleaner transportation.

The Future: Expected GST Changes from 2025

Disclaimer: The following section discusses potential changes based on industry reports and expert analysis. Official notifications from the GST Council are awaited.

The GST framework is dynamic, and the GST Council constantly reviews rates and structures. There is ongoing discussion about simplifying the complex tax slabs, and the automotive sector is a key area of focus.

What to Expect from the 2025 GST Changes for EVs and Other Vehicles?

Potential Rationalization of GST Slabs and Cess

Industry bodies have long been lobbying for a more streamlined tax structure for automobiles. The current system, which relies on multiple criteria like length, engine size, and fuel type, is often criticized for being overly complex. Potential changes could include:

• Simplifying Cess: The multiple cess slabs (1%, 3%, 17%, 20%, 22%) could be merged into fewer brackets. This would make the tax calculation more transparent for consumers.
• New Classification Criteria: There is speculation that the government might move away from engine capacity as the sole determinant for cess. Future classifications could be based on a vehicle’s emission levels or safety ratings, aligning tax policies with environmental and safety goals.
• Inclusion of Two-Wheelers in Lower Slabs: The auto industry has repeatedly requested that two-wheelers, which are a primary mode of transport for millions, be moved from the 28% “luxury” slab to a more affordable 18% slab. If this happens, it could significantly reduce prices.

The Potential GST Impact on Car Prices India Post-2025

Any revision in the GST structure will directly affect vehicle prices. Here are a few possible scenarios:

• Scenario 1 (Higher Cess on some segments): To boost revenue, the government might increase the cess on luxury vehicles or introduce new criteria that bring more models into the higher tax brackets. This would make high-end cars and SUVs even more expensive.
• Scenario 2 (Lower GST/Cess on small cars): If the government aims to boost the entry-level market, a reduction in GST or cess for small cars could make them more affordable, stimulating demand in this price-sensitive segment.
• Electric Vehicles: The crucial question is whether the concessional 5% GST on electric vehicles India will continue. Most experts believe it will remain for the foreseeable future to support the FAME-II scheme and India’s 2030 EV targets. However, as the EV market matures, a gradual increase or the introduction of a small cess is not entirely out of the question.

A Practical Guide for Buyers and Businesses

Understanding the tax implications is crucial, whether you’re buying a vehicle for personal use or for your business.

Should You Buy Now or Wait for the 2025 GST Changes?

Advice for Salaried Individuals

This is the classic dilemma for any potential car buyer. Here’s a breakdown to help you decide:

• Reasons to Buy Now:
  • Certainty: The current tax rates are known and fixed. You can calculate your exact on-road price without any surprises.
  • Good Deals: Manufacturers and dealers often provide attractive year-end discounts and offers to clear existing inventory. These savings might outweigh any potential future tax benefits.
  • Urgent Need: If you need a vehicle immediately, waiting for potential policy changes that may or may not happen is impractical.
• Reasons to Wait:
  • Potential Savings: If you plan to buy a small car or a two-wheeler, there is a possibility (though not a guarantee) that rates could be rationalized downwards, resulting in a lower price.
  • New Models: Waiting might also give you access to newer, more advanced models scheduled for launch next year.
  • Inflation Risk: The primary risk of waiting is that manufacturers often hike prices at the beginning of the year to offset rising input costs. This price increase could easily nullify any savings from a tax reduction.

For Business Owners: Claiming Input Tax Credit (ITC) on Vehicles

For businesses, a vehicle purchase comes with the important consideration of Input Tax Credit (ITC). ITC allows you to claim the GST paid on your purchases as a credit against your final GST liability. However, the rules for vehicles are very specific. To learn more, read our detailed guide on ITC on Motor Vehicles: Understanding the Eligibility Criteria.

• When is ITC Allowed?

  A business can claim ITC on the GST paid for a motor vehicle only if it is used for the following specific purposes:

  1. Further supply of such vehicles: For example, a car dealership buying cars from a manufacturer.
  2. Transportation of passengers: Such as businesses running taxi services, employee transport, or tour operations.
  3. Imparting training on driving: Driving schools can claim ITC on their training vehicles.
  4. Transportation of goods: Any vehicle designed for carrying goods is eligible for ITC.
• When is ITC Blocked?

  ITC is not available if a car (with a seating capacity of up to 13 persons) is purchased for other business purposes, such as:

  • Use by a director or CEO for commuting.
  • As a company car for an employee.
  • General administrative use.

This is a key area of Blocked Credits Under Section 17(5): What ITC Cannot Be Claimed?. Proper documentation, including tax invoices and accurate GST filing, is essential to claim ITC where it is allowed. To understand the complete process, see our guide on How to File GST Returns Online: A Step-by-Step Guide of the GST Filing Process & Procedure. Misinterpreting these rules can lead to penalties.

Conclusion

The landscape of GST on vehicles in India is intricate, defined by a high base rate of 28% and a widely varying Compensation Cess. While the current GST rates for cars make smaller vehicles relatively accessible, they place a heavy tax burden on larger cars and SUVs. In contrast, the low 5% GST on electric vehicles provides a clear incentive for buyers to adopt green technology. As we look towards 2025, the possibility of GST rationalization brings both hope for simplification and uncertainty about future pricing.

Whether you are an individual carefully planning your next vehicle purchase or a business owner evaluating the ITC implications, a clear understanding of these tax components is non-negotiable. It empowers you to budget accurately, make financially sound decisions, and stay compliant.

Navigating GST compliance and ITC claims can be complex. Let the experts at TaxRobo handle it for you. Contact us today for seamless GST registration, filing, and advisory services.

FAQs on GST Rates for Vehicles

Q: How is the final on-road price of a car calculated with GST?

A: The ex-showroom price of a car is the price before local taxes and includes the base price + GST + Compensation Cess. The final on-road price is calculated by adding other charges to the ex-showroom price, such as RTO registration fees, road tax, insurance, and any optional accessories. These additional charges are outside the purview of GST.

Q: Can a business owner claim ITC on a car purchased for the director’s use?

A: Generally, no. As per Section 17(5) of the GST law, Input Tax Credit (ITC) is blocked on motor vehicles with a seating capacity of less than 13 persons when used for personal or employee transport. ITC can only be claimed if the vehicle is used for specified business purposes like passenger transport (e.g., a taxi business), goods transport, or driver training.

Q: What is the current GST on electric vehicles India?

A: The current GST rate for all-electric vehicles in India, including both two-wheelers and four-wheelers, is a concessional 5%. This rate is significantly lower than the 28% GST applicable to most petrol and diesel vehicles, and EVs are also exempt from Compensation Cess.

Q: Is there a different GST rate for used or second-hand cars?

A: Yes, the GST treatment for used cars is different. GST is levied only on the margin earned by the dealer, which is the difference between the selling price and the purchase price of the car. If the margin is positive, GST is applicable at a lower rate, typically 12% for small cars and 18% for larger cars. If there is no margin, no GST is charged.

Q: Where can I find the latest official updates on GST rates for cars India?

A: For the most accurate and up-to-date information on GST rates, notifications, and circulars, you should always refer to the official government sources. The primary source is the website of the Central Board of Indirect Taxes and Customs (CBIC) at https://cbic-gst.gov.in/. You can also follow updates from the official GST Council meetings. For expert analysis on how these changes affect your business, you can follow the TaxRobo blog.