GST Cut for Small Cars, Hike to 40 per cent for SUVs and Big Bikes

04 Sep 2025 CW Team

The revised rates, which will come into effect from 22 September 2025, offer relief to buyers of mass-market vehicles, while increasing the tax burden on the premium automotive segment.

Key Changes:

Small petrol cars with engine capacity up to 1200cc and length not exceeding 4000 mm will now attract 18 per cent GST, down from 28 per cent.
A similar reduction applies to diesel vehicles with engine capacity up to 1500cc and length under 4000 mm.
Motorcycles and mopeds up to 350cc will also see GST reduced from 28 per cent to 18 per cent.
Electric vehicles (EVs) across all segments — two-wheelers, small cars, electric SUVs, and luxury EVs — will continue to attract 5 per cent GST, with no change announced.

These changes are expected to benefit Maruti Suzuki, Hyundai, Tata Motors, and two-wheeler manufacturers focusing on commuter segments.

Premium Segment Hit:

Motorcycles above 350cc, including models from Royal Enfield, will now attract 40 per cent GST, up from 28 per cent.
The new 40 per cent GST rate also applies to petrol vehicles over 1200cc or longer than 4000 mm, and diesel vehicles over 1500cc or longer than 4000 mm, which includes most SUVs and premium sedans.
Plug-in hybrid vehicles with larger engine capacities or extended body lengths are also brought under the 40 per cent slab.

Previously, such vehicles were taxed at 28 per cent GST plus a compensation cess of 17–22 per cent, resulting in an effective tax burden of 45–50 per cent. Under the new regime, they will be taxed at a flat 40 per cent with no cess, streamlining the tax structure but maintaining a high rate for large vehicles.

Other Updates:

A 10 per cent GST reduction will apply to:
Ambulances
Road tractors for semi-trailers with engine capacity over 1800cc
Three-wheeled motor vehicles

At present, passenger vehicles fall under a multi-slab GST and cess structure. This latest revision seeks to simplify the system by aligning taxes with vehicle size and fuel type, promoting affordability and efficiency in the entry-level segment while levelling higher taxes on premium and high-emission vehicles.

The Council’s move is seen as a push towards rationalising the tax burden on common-use vehicles while discouraging larger, high-emission models in line with India’s climate and mobility goals.

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The 56th GST Council, chaired by Finance Minister Nirmala Sitharaman, has approved major changes to the Goods and Services Tax (GST) structure for motor vehicles, reducing rates on small cars and motorcycles while imposing a flat 40 per cent GST on premium vehicles, including SUVs and large motorcycles.The revised rates, which will come into effect from 22 September 2025, offer relief to buyers of mass-market vehicles, while increasing the tax burden on the premium automotive segment.Key Changes:Small petrol cars with engine capacity up to 1200cc and length not exceeding 4000 mm will now attract 18 per cent GST, down from 28 per cent.A similar reduction applies to diesel vehicles with engine capacity up to 1500cc and length under 4000 mm.Motorcycles and mopeds up to 350cc will also see GST reduced from 28 per cent to 18 per cent.Electric vehicles (EVs) across all segments — two-wheelers, small cars, electric SUVs, and luxury EVs — will continue to attract 5 per cent GST, with no change announced.These changes are expected to benefit Maruti Suzuki, Hyundai, Tata Motors, and two-wheeler manufacturers focusing on commuter segments.Premium Segment Hit:Motorcycles above 350cc, including models from Royal Enfield, will now attract 40 per cent GST, up from 28 per cent.The new 40 per cent GST rate also applies to petrol vehicles over 1200cc or longer than 4000 mm, and diesel vehicles over 1500cc or longer than 4000 mm, which includes most SUVs and premium sedans.Plug-in hybrid vehicles with larger engine capacities or extended body lengths are also brought under the 40 per cent slab.Previously, such vehicles were taxed at 28 per cent GST plus a compensation cess of 17–22 per cent, resulting in an effective tax burden of 45–50 per cent. Under the new regime, they will be taxed at a flat 40 per cent with no cess, streamlining the tax structure but maintaining a high rate for large vehicles.Other Updates:A 10 per cent GST reduction will apply to:AmbulancesRoad tractors for semi-trailers with engine capacity over 1800ccThree-wheeled motor vehiclesAt present, passenger vehicles fall under a multi-slab GST and cess structure. This latest revision seeks to simplify the system by aligning taxes with vehicle size and fuel type, promoting affordability and efficiency in the entry-level segment while levelling higher taxes on premium and high-emission vehicles.The Council’s move is seen as a push towards rationalising the tax burden on common-use vehicles while discouraging larger, high-emission models in line with India’s climate and mobility goals.

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