GST On Cars And Bikes: New Tax Rates Explained
- THE MAG POST
- Sep 4
- 6 min read
The automotive sector is experiencing a significant tax recalibration, with the 56th GST Council meeting introducing a wave of changes that will reshape the market. For those eyeing a new car, bike, or even a tractor, these adjustments bring both good news and increased costs depending on the vehicle type. The government has strategically lowered taxes on smaller, more accessible vehicles, aiming to boost affordability for everyday commuters and rural buyers. Simultaneously, the tax burden on luxury cars, SUVs, and premium motorcycles has been adjusted, signaling a shift in fiscal priorities. These changes, set to take effect on September 22, 2025, demand a closer look to understand their full impact on consumers, businesses, and the broader automotive industry.
Navigating the Evolving GST Landscape for Vehicles
The recent 56th GST Council meeting has ushered in significant shifts in taxation for vehicles, impacting everything from compact cars and motorcycles to high-end SUVs and commercial transporters. This strategic adjustment aims to recalibrate pricing, potentially making smaller, more accessible vehicles more affordable while increasing the cost of luxury and performance-oriented models. The implications extend across various consumer segments, from daily commuters and farmers to businesses reliant on logistics. Understanding these changes is crucial for anyone looking to purchase a vehicle or operate a transport business in the near future.
A New Era for Small Cars and Motorcycles
The most notable change is the reduction in Goods and Services Tax (GST) for smaller vehicles. For petrol, CNG, and LPG cars with an engine capacity up to 1200cc and a length not exceeding 4000 mm, the GST has been reduced from 28% to 18%. Similarly, diesel cars meeting these engine capacity (up to 1500cc) and length (up to 4000 mm) criteria also benefit from this lower tax bracket. This adjustment is expected to make popular models like the Maruti Swift, Hyundai i20, and Honda Amaze more accessible to a broader consumer base, potentially boosting sales in the entry-level and compact segments.
Making Everyday Commutes More Affordable
The revised tax structure is particularly beneficial for the average commuter. Lowering the GST on vehicles designed for everyday use means a tangible reduction in the on-road price. This could encourage more individuals to opt for new vehicles, replacing older, less efficient models. The affordability factor is key, as it directly impacts household budgets and can stimulate demand in a crucial sector of the economy.
Impact on Mass-Market Two-Wheelers
The positive trend extends to motorcycles and scooters. Two-wheelers with an engine capacity of up to 350cc, including mopeds and scooters with auxiliary motors, will now see their GST rate fall from 28% to 18%. This is a significant boon for millions of daily commuters who rely on motorcycles and scooters for their transportation needs. The price drop is anticipated to make these essential vehicles more attainable, potentially leading to increased sales and greater accessibility for riders across the country.
The Shifting Tides for Premium and Large Vehicles
Conversely, the GST council has also adjusted rates for larger, more luxurious, and performance-oriented vehicles. Cars with engine capacities exceeding 1200cc (for petrol/CNG/LPG) or 1500cc (for diesel), or those longer than 4000 mm, will now face a consolidated GST rate of 40%. This represents a shift from the previous structure of 28% GST plus an additional 17-22% compensation cess. While the combined earlier rate could reach up to 50%, the new 40% rate simplifies the tax structure, though it still signifies an increase in the effective tax burden for buyers of these premium segments.
Luxury Sedans and SUVs Face Higher Costs
This rate adjustment means that vehicles such as the Toyota Fortuner, higher variants of the Mahindra XUV700, and various imported luxury sedans will become more expensive. The move signals a potential government strategy to encourage the purchase of smaller, more fuel-efficient vehicles while discouraging the acquisition of larger, less eco-friendly options. The increased cost for these segments may lead some consumers to reconsider their purchase decisions or explore more budget-friendly alternatives.
Premium Motorcycle Segment Sees Price Hike
Enthusiasts of high-performance motorcycles will also need to prepare for higher prices. Motorcycles with engine capacities exceeding 350cc, including popular models from brands like Royal Enfield (650cc range), Harley-Davidson, and premium KTM offerings, will now attract the 40% GST rate. This increase will likely affect the purchasing power of riders aspiring to own these powerful machines, potentially leading to a slowdown in sales for the premium motorcycle segment.
Support for Rural and Commercial Sectors
Beyond passenger vehicles, the GST council has also implemented changes benefiting the agricultural and logistics sectors. Tractors, with the exception of very high engine capacity road tractors, along with essential tractor parts such as tyres, brakes, radiators, and clutches, will now be taxed at a significantly reduced rate of just 5% GST. This represents a substantial relief for farmers, making crucial agricultural machinery more affordable and supporting the rural economy.
Three-Wheelers and Commercial Transport Get Relief
Three-wheeled auto-rickshaws will also see a reduction in GST, moving to 18%. Furthermore, commercial vehicles, including trucks, chassis for lorries, and other goods transport vehicles, will now be taxed at 18% instead of the previous 28%. This reduction is a welcome development for logistics companies and fleet operators, potentially leading to lower operational costs and, over time, more competitive freight rates across the supply chain.
Electric and Hybrid Vehicles: A Mixed Outlook
The GST council’s decisions regarding electric and hybrid vehicles present a nuanced picture. Notably, the GST rate on electric vehicles (EVs) remains unchanged at 5%. This decision quashes earlier speculations about a potential hike to 18%, maintaining the current pricing for popular EVs like those from Ather, Ola Electric, and TVS. This stable rate is likely intended to continue supporting the adoption of electric mobility. However, the treatment of hybrid vehicles is segmented: small hybrids (meeting specific engine and length criteria) will follow the 18% GST rate, while larger hybrids will fall under the 40% bracket. In a move to champion clean energy, fuel-cell vehicles, including hydrogen-powered cars, will attract a minimal 5% GST.
Simplification and Future Implications
A key takeaway from these changes is the simplification of the tax structure, particularly for luxury and large vehicles. By consolidating the 28% GST and the compensation cess into a single 40% GST rate, the government aims to create a more transparent system. This eliminates the complexity of calculating combined taxes. For consumers, the impact will vary significantly based on their vehicle choice. Those eyeing compact cars, affordable motorcycles, or commercial vehicles may find attractive price reductions. Conversely, buyers of premium SUVs, luxury sedans, or high-performance bikes will face increased costs. The long-term effects could influence purchasing trends, encourage a shift towards more economical and eco-friendly transportation, and potentially reduce logistics costs for businesses.
Final Thoughts on Vehicle Taxation
The latest GST council decisions reflect a strategic rebalancing of taxes across the automotive spectrum. By differentiating tax rates based on vehicle size, engine capacity, and intended use, the government is signaling its priorities – promoting accessible transportation, supporting essential rural and commercial sectors, and encouraging cleaner mobility options. While premium vehicle buyers face higher costs, the overall impact promises greater affordability for a significant portion of the market, alongside greater clarity in tax computation. These adjustments, effective from September 22, 2025, will undoubtedly reshape the automotive market landscape.
Vehicle Type | Previous GST Rate (Approx.) | New GST Rate | Impact |
Small Cars (Petrol/CNG/LPG < 1200cc, < 4000mm) | 28% | 18% | Price Reduction |
Small Cars (Diesel < 1500cc, < 4000mm) | 28% | 18% | Price Reduction |
Large Cars & SUVs (> 1200cc Petrol or > 1500cc Diesel or > 4000mm) | 28% + 17-22% Cess (Total ~45-50%) | 40% (Consolidated) | Price Increase (Simplified Structure) |
Motorcycles (< 350cc) | 28% | 18% | Price Reduction |
Motorcycles (> 350cc) | 28% + Cess | 40% (Consolidated) | Price Increase (Simplified Structure) |
Tractors & Parts | 28% | 5% | Significant Price Reduction |
Three-Wheelers (Autos) | 28% | 18% | Price Reduction |
Commercial Vehicles (Trucks, Chassis) | 28% | 18% | Price Reduction |
Electric Vehicles (EVs) | 5% | 5% | No Change |
Small Hybrids (Specific Criteria) | 28% + Cess | 18% | Price Reduction |
Large Hybrids (Specific Criteria) | 28% + Cess | 40% | Price Increase |
Fuel-Cell Vehicles | 28% + Cess | 5% | Price Reduction (Incentive for Clean Mobility) |
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