Domestic car sales in the last financial year grew by nearly 9% to a record 4.23 million units, underscoring the significant momentum in the automotive industry.
This growth highlights the car industry’s crucial role in economic development, from job creation to technological advancements.
An important factor influencing this sector is the Goods and Services Tax (GST), which introduced a uniform tax structure in India.
Before GST, car taxes were much higher, now the new system has streamlined rates based on vehicle type and fuel.
This blog will take you through the different GST rates on cars, their impact, compensation cess, and more.
Table of Contents
What is GST on Cars?
In India, the GST on cars spans multiple slab rates: 5%, 12%, 18%, and 28%. The lowest GST rate of 5% is reserved for vehicles designed for use by disabled individuals and related accessories. However, GST is not the sole tax on motor vehicle sales; a compensation cess of up to 22% can be added on top of GST.
Read About: Updated List of Goods and Service Tax (GST) Rates in 2025
What are the Factors for Classifying GST on Cars?
The GST on cars in India is primarily determined by several key factors, including the engine capacity and length of the car, which influences the applicable tax rate. Vehicle type, such as passenger cars, SUVs, or commercial vehicles, also plays a significant role in determining GST rates.
Additionally, the classification of the vehicle as a hybrid or electric vehicle can affect the tax rate, with incentives often provided for environmentally friendly options.
Other considerations include the use of the vehicle (personal or commercial), the presence of luxury features, and specific government policies aimed at promoting certain types of vehicles or technologies. Together, these factors ensure that the GST rates are tailored to encourage efficiency, sustainability, and appropriate usage.
Related Read: List of Goods and Services Exempt Under GST
GST on Cars Based on Engine Capacity
The GST rates for cars in India vary based on engine capacity, offering notable reductions from pre-GST rates. This restructuring aims to simplify taxation and reduce the overall tax burden for consumers.
Car Category |
Pre-GST rate |
Post-GST rate |
| Vehicles under 1200cc engine capacity | 39% | 19% |
| Vehicles between 1200-1500cc engine capacity | 40% | 19% |
| Vehicles above 1500cc engine capacity | 43% | 30% |
| SUV cars with 1500cc engine capacity or above | 46% | 29% |
Related Read: GST on Used Cars
GST on Cars Based on Fuel Type
GST rates for vehicles are determined by their fuel type, creating a varied tax landscape. These rates are structured to reflect the environmental impact of different fuel sources, influencing the cost of owning and operating a car based on its fuel efficiency and emissions.
Type of Vehicle |
Capacity of fuel tank |
Pre-GST rate |
Post-GST Rate |
| Petrol Vehicle | below 1.2 Litre | 31.6% | 28% |
| Diesel Vehicle | More than 1.5 Litre | 34.25% | 32% |
| Both Petrol and Diesel Vehicle | Petrol over 1.2 L and Diesel over 1.5Litre | 45.7% | 44% |
| Bigger than 4-meter vehicle runs with both petrol-diesel | Any type | 56% | 44% |
| Electric vehicles | NIL | 21.5% | 13% |
GST Rate on Electric Cars
Electric cars currently attract a 5% Goods and Services Tax (GST). Previously, both electric vehicles and their associated charging equipment were subject to an 18% GST. However, this was revised during the 36th GST Council meeting in July 2019, with the lower rate taking effect from August 1, 2019. Importantly, this 5% GST applies uniformly to all electric vehicles, regardless of whether they are used for personal or commercial purposes.
To illustrate the impact of this change, consider an electric car priced at ₹10 lakh. Under the old GST rate of 18%, the tax amount would have been ₹1.8 lakh, bringing the total cost to ₹11.8 lakh. With the reduced GST rate of 5%, the tax on the same car would now be ₹50,000, making the total cost ₹10.5 lakh. This substantial reduction highlights the financial benefits of the new GST policy for EV buyers.
Vehicle Type |
Previous GST Rate |
Current GST Rate |
| Electric Vehicle | 18% | 5% |
GST on SUVs and Luxury Cars
SUVs in India are subject to a 28% Goods and Services Tax (GST). However, electric SUVs are an exception, enjoying a significantly lower GST rate of 5%. This reduced tax is a government incentive to promote electric vehicles and reduce carbon emissions.
An SUV, or sport utility vehicle, is a versatile type of automobile that blends the characteristics of traditional passenger cars with features typically found in off-road vehicles. This combination often includes elevated ground clearance and four-wheel drive capabilities, making SUVs suitable for a range of terrains.
In India, SUVs come in various forms, from compact models to spacious, seven-seater luxury versions, each subject to different tax rates.
GST on Second-hand Cars
The GST rate on used cars is set at 12% of the transaction value. However, this tax is applied only to the dealer’s margin, which is the profit earned on the sale. For example, if a car is purchased for Rs. 5 lakh and sold for Rs. 6 lakh, GST is calculated on the Rs. 1 lakh profit.
Car Type |
Engine Capacity |
GST |
Compensation Cess |
| Petrol | Up to 1200cc | 12% | 0 |
| Petrol | Above 1200cc | 18% | 0 |
| Diesel | Up to 1500cc | 12% | 0 |
| Diesel | Above 1500cc | 18% | 0 |
Compensation Cess in GST Act
A compensation cess, introduced with the GST Act, is an additional charge on certain goods to offset potential revenue losses for manufacturing states under the GST regime. Key items subject to this cess include motor vehicles, aerated water, solid fuels like coal, and tobacco products. Notably, this cess does not apply to exported goods, and exporters can claim refunds for any paid cess. Businesses under the composition scheme are also exempt. Initially set for five years, this cess was in effect until July 1, 2022.
GST Compensation Cess on Cars
At the time of vehicle sales, a compensation cess is added to the GST on cars. Here are the compensation cess rates for different types of vehicles:
Vehicle Type |
Compensation Cess |
| Petrol/CNG/LPG car < 1200cc, < 4 meters | 1% |
| Petrol/CNG/LPG car < 1200cc, > 4 meters | 15% |
| Petrol/CNG/LPG car > 1200cc | 22% |
| Diesel car < 1500cc, < 4 meters | 3% |
| Diesel car < 1500cc, > 4 meters | 20% |
| Diesel car > 1500cc, > 4 meters, ground clearance > 170mm | 22% |
| Electric cars | Nil |
| Ambulances | Nil |
| Three-wheeler motorized vehicles | Nil |
| Fuel cell vehicles | Nil |
| Motorcycles/mopeds up to 350cc | Nil |
| Motorcycles over 350cc | 3% |
GST Impact on the Automobile Industry
The introduction of GST has eased the tax burden on the automobile industry, replacing the higher combined excise and VAT rates of 26.5% to 44% with GST rates of 18% and 28%. This change benefits consumers with lower overall taxes.
Additionally, importers and dealers now have the advantage of claiming GST on imported and sold goods, which was not possible with excise duty and VAT.
For manufacturers, GST facilitates cheaper procurement of auto parts due to an improved supply chain. Cars and bikes are taxed at 28%, with additional cesses ranging from 1% to 15% based on vehicle type.
Conclusion
The GST framework has streamlined car taxation, providing clear rates based on vehicle type and fuel, and promoting a shift towards greener options with lower taxes on electric vehicles. This approach benefits both consumers and the industry by simplifying tax structures and encouraging environmentally friendly choices.
Related Read: GST on Transport Services for Road, Rail, Air and Water Ways in 2025
Frequently Asked Questions (FAQs)
1. Is GST applicable on the sale of used cars by a company?
Yes, GST is applied to the dealer’s margin on the sale of used cars.
2. Can we claim GST on cars?
Businesses can claim GST on car purchases if the vehicle is used for business purposes.
3. How to calculate GST cess on cars?
GST cess is calculated based on the vehicle type, engine capacity, and other specifications. For more details visit the GST website.
4. Can we claim GST input on car insurance?
GST input credit on car insurance is not allowed for personal vehicles but can be claimed for business vehicles.
5. What is the GST rate for Maruti Swift?
The GST rate for a Maruti Swift (Petrol) is 18% plus the applicable compensation cess (1%).
6. Has GST on cars reduced?
Yes, GST rates have been reduced for certain categories, including electric vehicles.
7. Will GST be reduced on cars?
Potential changes in GST rates for cars could be influenced by decisions made in upcoming GST Council meetings, reflecting shifts in government policy and economic priorities.
