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The Indian government has responded to the automotive industry’s request for a Goods and Services Tax (GST) reduction on cars, aiming to stimulate personal mobility. Despite being the world’s third-largest car market, India’s car adoption rate remains relatively low, with approximately 32-34 cars per 1,000 people.
During its 56th meeting, the GST Council approved a reduction in the tax rate for small cars, lowering it to 18% from the previous 28%. Larger vehicles, including SUVs, will now be taxed at 40% without any additional cess, effectively lowering the overall tax burden. Electric vehicles continue to benefit from a 5% GST rate, while all automotive components, regardless of the vehicle type, are subject to an 18% tax.
The GST Council has categorized a small car as one that is under four meters in length, equipped with petrol, CNG, or LPG engines below 1,200 cc, and diesel engines below 1,500 cc. Cars exceeding these specifications will fall under the 40% GST bracket.
The updated GST rates apply across a range of vehicles, from entry-level models to luxury cars in the mass-market segment. The changes include adjustments for brands such as Maruti Suzuki, Mahindra, Hyundai, Tata Motors, KIA India, Toyota India, JSW MG Motor, Honda Cars India, Renault/ Nissan, and Skoda/VW.
A concern for some buyers is the higher 40% GST on vehicles with slightly larger 1500cc engines. These are often helpful in hilly regions. A similar situation exists for two-wheelers, where motorcycles with an engine capacity of 350 cc or more will attract higher taxes.
