The Government has announced sweeping changes in GST rates on automobiles as part of GST 2.0 reforms, effective from 22nd September 2025. These changes were approved in the 56th GST Council Meeting (3rd September 2025) and notified through a series of official notifications.
This move simplifies the tax structure, reduces the burden on common consumers, and removes the long-standing compensation cess on motor vehicles. Let us understand the impact in detail.
📜 Relevant Notifications
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Notification No. 12/2025–Central Tax (Rate) dated 17.09.2025
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Notification No. 12/2025–Integrated Tax (Rate) dated 17.09.2025
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Notification No. 02/2025–Compensation Cess (Rate) dated 17.09.2025 (Cess abolished on vehicles)
🔑 Key Changes in GST Rates on Vehicles
| Category / Criterion | Earlier Rate (before 22.09.2025) | New Rate (from 22.09.2025) | Change |
|---|---|---|---|
| Two-Wheelers up to 350 cc | 28% GST | 18% GST | ↓ 10% |
| Two-Wheelers above 350 cc | 28% + 3% Cess | 40% (flat) | Shifted to luxury slab |
| Small Cars (Petrol / CNG / LPG ≤ 1,200 cc & ≤ 4,000 mm) | 28% + 1% Cess | 18% GST | ↓ 11% |
| Small Diesel Cars (≤ 1,500 cc & ≤ 4,000 mm) | 28% + 3% Cess | 18% GST | ↓ 13% |
| Mid-size / Large / Luxury Cars | 28% + cess up to 22% | 40% (flat, no cess) | Consolidated as luxury |
| Three-Wheelers (HSN 8703) | 28% | 18% | ↓ 10% |
| Passenger Vehicles (10+ seats, HSN 8702) | 28% | 18% | ↓ 10% |
| Goods Transport Vehicles (HSN 8704) | 28% | 18% | ↓ 10% |
| Ambulances (ready-to-use) | 28% | 18% | ↓ 10% |
| Old / Used Vehicles (dealer margin) | 12% / 18% (case-wise) | Uniform 18% | Rationalised |
👉 The biggest relief is for commuter vehicles (small cars & two-wheelers), while luxury vehicles now face a consolidated 40% rate.
🧮 Practical Illustrations
Example 1: Small Petrol Car (1,200 cc, ≤ 4,000 mm)
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Base Price (Ex-factory): ₹5,00,000
Before 22nd Sep 2025
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GST @ 28% = ₹1,40,000
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Cess @ 1% = ₹5,000
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Total Tax = ₹1,45,000
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On-road (Pre-registration) = ₹6,45,000
After 22nd Sep 2025
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GST @ 18% = ₹90,000
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Total Tax = ₹90,000
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On-road (Pre-registration) = ₹5,90,000
✅ Net Saving = ₹55,000 (≈ 38% tax reduction)
Example 2: Commuter Bike (150 cc)
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Base Price (Ex-factory): ₹1,00,000
Before 22nd Sep 2025
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GST @ 28% = ₹28,000
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Total Price = ₹1,28,000
After 22nd Sep 2025
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GST @ 18% = ₹18,000
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Total Price = ₹1,18,000
✅ Net Saving = ₹10,000
Example 3: Luxury SUV (2,000 cc, > 4,000 mm)
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Base Price (Ex-factory): ₹30,00,000
Before 22nd Sep 2025
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GST @ 28% = ₹8,40,000
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Cess @ 22% = ₹6,60,000
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Total Tax = ₹15,00,000
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On-road (Pre-registration) = ₹45,00,000
After 22nd Sep 2025
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GST @ 40% = ₹12,00,000
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Total Tax = ₹12,00,000
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On-road (Pre-registration) = ₹42,00,000
✅ Net Saving = ₹3,00,000
🌍 Broader Impact
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Consumers: Big savings for middle-class families and daily commuters.
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Automobile Industry: Boost in demand for mass-market vehicles, possible price corrections in luxury segment.
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Government: Simplified GST structure with two clear slabs — 18% for regular vehicles and 40% for luxury/sin goods.
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Economy: Higher demand = more production = job creation across auto and allied industries.
📝 Expert View
This restructuring is a bold and consumer-friendly reform under GST 2.0. The removal of cess has ended years of complexity, making vehicle taxes simpler and more transparent.
For the common man, cars and bikes are now significantly more affordable. For the industry, it’s a chance to revive sales and regain growth momentum.
✅ Conclusion
The GST Council’s decision to reduce GST rates on small cars and two-wheelers while consolidating luxury cars at 40% marks a turning point in India’s automobile taxation.
🚘 If you’re planning to buy a car or a bike, this could be the best time to make your purchase.
Stay tuned to TechTax.in for more simplified GST insights and updates!
