In September 2025, India’s GST Council approved a sweeping overhaul of automobile taxation, drastically reducing GST for most passenger vehicles. This reform is a strategic move to boost demand as car sales falter, simplify tax structure, and ease consumer spending. With major cuts for cars under 1500 cc, and rationalized slabs for high-end vehicles, this change could reshape buying trends. Here’s a complete breakdown of what’s changed and what it means for you.
GST Structure: Before vs After Reform
Pre-September 2025 GST Rates
Small petrol cars (≤ 1200 cc, ≤ 4 m length): 28% GST + 1% cess = 29% total
Small diesel cars (≤ 1500 cc, ≤ 4 m length): 28% + 3% = 31%
Cars up to 1500 cc (mid-size/larger): 28% + 17% = 45%
Cars above 1500 cc (luxury): 28% + 20% = 48%
SUVs (above 1500 cc, >4 m, high GC): 28% + 22% = 50%
Post-Reform GST Rates (Effective 22 September 2025)
Small cars (petrol ≤ 1200 cc, diesel ≤ 1500 cc, ≤ 4 m): 18% GST (no cess)
Cars above 1500 cc (all types): Moved to a flat 40% GST, cess abolished
Electric vehicles remain at 5% GST
🆚 Comparison Table: Old vs New GST by Category
Engine / Category Previous Total Tax (GST + Cess) New GST Rate
Petrol ≤ 1200 cc, ≤ 4 m 29% 18%
Diesel ≤ 1500 cc, ≤ 4 m 31% 18%
Cars up to 1500 cc (mid-size) ~ 45% 40%
Cars above 1500 cc (luxury) ~ 48% 40%
SUVs (> 1500 cc, > 4 m) ~ 50% 40%
Why It Matters
Reduced prices for compact vehicles — Models like Maruti Wagon R, Tata Punch, Fronx, Hyundai Creta, and Mahindra Thar now attract just 18%, down from ~29–31%, potentially trimming ex-showroom prices significantly .
Luxury made slightly accessible — No more steep cess; 40% flat rate makes high-end cars more affordable than the previous ~48–50% total tax .
Cleaner tax system — Cess eliminated, simpler slabs—only 18%, 5% (EVs), and 40% now, boosting transparency and compliance .
Pros & Cons
Pros
🔘 Cheaper compact cars
🔘 Price reduction on luxury models
🔘 Simplified taxation with fewer tiers
🔘 Boosts demand and likely helps auto manufacturers
Cons
🔘 Benefit skewed toward small vehicles
🔘 Luxury segment still heavily taxed
🔘 Long-term inflationary effects unclear
Impact on Popular Models
Maruti Swift, Hyundai Creta, Mahindra Thar: Set to enjoy price drops under new 18% slab .
Example – Brezza: Although ~1.5 L petrol, it exceeds 'small car' threshold and falls under 40% slab. Still cheaper than the previous ~45% tax regime .
Expert Perspective
Auto industry leaders and analysts applaud the change for boosting affordability and simplifying classification—critical for reviving demand during festive season . Financial markets reacted positively, with the Nifty Auto index surging after the reform announcement .
Conclusion
The GST 2.0 reform of September 2025 marks a pivotal shift in India’s auto taxation. Small cars now enjoy a much lower 18% GST, luxury cars and SUVs now taxed at a flat 40%, and the cess abolished across categories—simplifying the system and making cars more attainable. This reform heralds a win for consumers and automakers alike.
FAQ (schema structure)
Q1: When did the new car GST rates come into effect?
A1: They apply from 22 September 2025 after approval by the GST Council.
Q2: What is the GST rate now for cars under 1500 cc?
A2: All small cars (<= 1200 cc petrol or <= 1500 cc diesel, <= 4 m) are now taxed at 18% GST, with no cess.
Q3: What is the new GST on cars above 1500 cc?
A3: The GST for these vehicles is now a flat 40%, with cess removed.
Q4: Are EVs taxed differently?
A4: No change—they continue to enjoy a low 5% GST.
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