New GST Rule Is Out! What does it mean for Indian Car Owners?

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So, great news for people who want to buy a budget car in India! India has finally revised the GST rates for small cars ahead of the upcoming festive season!

Previously, cars entailed a 28% tax, but now, that has been revised to 18% - thereby making car ownership possible again for a large number of Indians. However, note that luxury vehicles would now entail 40% GST, but the astonishing aspect is that the total amount one would be paying will be collectively low!

What Exactly Is A Small Car – In The Eyes Of The Policymakers?

The new GST rules for cars in India apply to entry-level cars.

An entry-level car is –

• A vehicle with a 1200 CC (or less) petrol engine and a length of 4000 mm (or less) or
• A vehicle with a 1500 CC (or less) diesel engine and a length of 4000 mm (or less).

The real-world examples of entry-level cars are the Maruti Suzuki Dzire, KIA Syros, KIA Seltos, Tata Nexon, etc.

Which Category Of Cars Are Moving To The 40% Tax Bracket?

The 40% GST on new car purchase is applicable on vehicles with above 1200 CC petrol engines and 1500 CC diesel engines, as well as a length exceeding 4000 MM.

However, note that previously, the total tax one had to pay on large vehicles was 50% when one also includes the 22% compensation cess that they had to pay. But now, with the elimination of the cess component from the equation, the total tax has indeed come down by a margin of 10%.

Tax Slab for EVs remains unchanged!

The interesting part in all of this excitement-induced news is that the policymakers decided to keep the tax bracket for electric vehicles unchanged at 5%. On top of this, no clarification is given yet about the effects of this new era of GST on luxury electric vehicles.

How Does The Indian New Car Buyer Benefit From The New GST Rules?

Well, a 10% cut on total tax collected from a car buyer translates to the following example!

Let us suppose that a hatchback came with a sticker price of Rs 6 lakhs (ex-showroom). After the implementation of this new tax norm, that car will cost INR. 60,000 cheaper!

How Will The Indian Automotive Industry Benefit From This New Tax Norm?

The Indian automotive sector has been witnessing a state of plateauing for a while now. The policymakers aim to change this by making automobiles affordable, especially for Indians with substantial disposable income.

India-made cars are perfectly positioned to witness a spike in demand. On the other hand, Completely Built Units as well as Completely Knocked Down units of luxury vehicles will also become marginally cheaper.

When Are These Changes Kicking In?

Well, these GST changes are kicking in from the 22nd of September, 2025 – which is the right time since the festive season will start just after that! Long story short – if you are planning to buy a new car, wait till the new GST norms kick in so that your pockets can thank you! On the flipside, if you want to buy a pre-owned car, then don’t forget to get a car health report in a bid to ensure that you do not waste your money on an unreliable car!