New GST rate on cars and other vehicles simplified; check old vs new GST on automobiles

The GST Council on Wednesday revised the Goods and Service Tax (GST) on all products, consolidating the complex tax system into two slabs - 5% and 18%. With the new tax structure in place, GST on small cars is reduced to 18%, whereas for all other car segments, it stands at 40%. With elimination of cess, the government has simplified the tax calculation on cars and household goods.

With automobiles previously taxed at 28%, the council has now introduced new rates for different segments of vehicles. Check out new GST rates for all four-wheeler categories, simplified, just for you:

Vehicles with engine capacity up to 1200 cc (for Petrol, LPG or CNG) were earlier taxed at 28% with an extra cess of 1%, for diesel vehicles up to 1500 cc, the additional cess was 3%.


The GST on all vehicles falling under this category has been reduced to 18%, slashing down the prices of small cars. This includes Maruti Suzuki Alto K10, Swift Dzire, Fronx, Baleno, Hyundai Grand i10, Tata Punch, Nexon and many others.

Unsoo Kim, MD at Hyundai Motor India said that the GST overhaul will directly benefit the automotive sector.

Also Read | GST 2.0: Biggest gainers and losers of the new tax regime

For motor vehicles with an engine capacity less than 1500 cc, the government previously charged 28% GST with high cess of more than 15% in almost every category, making the final tax rate more than 40%.


In GST 2.0, the Council decided to tax these cars at 40% without any additional cess. As automakers are expected to transfer the benefit of tax cut to customers, the Indian market is expecting a reduction in prices of cars ahead of Diwali season.

Also Read | GST 2.0 gets the green light: What gets cheaper and costlier from September 22

For cars with an engine capacity more than 1500 cc, other than SUVs, the government earlier imposed 28% GST with an additional cess of 15% or more, bringing the final tax rate between the range of 43% to 48% for different categories.


With this new GST reform announced by Finance Minister Nirmala Sitharaman, cars under this category would now be charged with 40% GST only.

"Bringing the tax rate to 40% and removing the cess will also ensure that these industries are eligible for ITC fully whereas previously the ITC could only be utilised up to 28% and not for the cess component," the Ministry of Heavy Industries said in a release.

For SUVs and other utility vehicles, the Finance Ministry earlier charged 28% GST along with a high cess, bringing the total tax rate between 43-50%.


Under the new GST announcements, the Council has decided to impose 40% tax on cars falling under this category. This includes Mahindra Thar, Scorpio, Hyundai Creta and Toyota Innova Crysta.

"Removal of the additional cess has not only reduced the rates but also makes taxation simple and predictable. Even at 40%, the absence of cess will lower the effective tax on larger cars, making them relatively more affordable for aspirational buyers," the government said in a release.

Motor vehicles in the category of Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, length exceeding 4000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40% without any cess.

"The recent rationalization of GST rates marks a positive development for India’s automobile industry, with potential to significantly uplift consumer sentiment during the festive period...the rate cut on auto parts is expected to ease long-standing classification disputes, streamlining operations across the supply chain," Gautam Khattar, Principal at Price Waterhouse & Co LLP (PWC) said.

"However, the absence of clarity on the treatment of residual Compensation Cess casts a shadow over an otherwise progressive reform. Addressing this gap will be crucial to ensure the full benefits of the rate cuts are realized across the ecosystem," Khattar added.

For other four-wheelers, excluding ambulance, the old tax rate was 43%, which has now been cut down to 40%.


Taking the growth outlook to a macroeconomic level, the government stated that "vehicle purchases are also credit-driven (NBFCs, banks, fintech lenders). Hence, a revival in auto sales will support retail loan growth, improve asset quality, and expand financial inclusion in semi-urban India.

(Data source: PwC)