New GST rates: Small cars and motorcycles to get more affordable

The Indian government has announced the new GST (Goods and Service Tax) rates and it has slashed the GST rates for small cars, and motorcycles with engines below 350cc, from 28 per cent to 18 per cent. Larger cars, and motorcycles with an engine above 650cc, will be taxed at a GST rate 40 per cent. The new GST rates will come into effect from September 22, 2025. Here’s a closer look at them.

Small cars to get more affordable

The tax rate for small cars has been slashed from the earlier rate of 28 per cent to 18 per cent GST. This applies to cars which are below 4-metres in length and are equipped with an engine smaller than 1200cc for petrol cars or 1500cc for diesel cars – and it will make them more affordable to buy.

40 per cent GST for larger cars and luxury vehicles

The earlier tax structure levied 28 per cent GST on larger cars – those longer than 4-metres in length and powered by an engine larger than 1200cc for petrol cars or 1500cc for diesel cars – along with an additional cess, depending on the powertrain. This meant that the effective tax rate on these cars could be up to 50 per cent, but with the new GST rates, these cars will now be taxed at a flat 40 per cent GST rate. Those in the market for a luxury car will also benefit from this move, as the earlier compensation cess has now been replaced by the new GST rate.

Motorcycles up to 350cc to get cheaper

The GST rates have now been slashed down from 28 per cent to 18 per cent for motorcycles that have an engine smaller than 350cc. However, motorcycles having engines larger than 350cc will now get more expensive to buy, as they will be taxed at 40 per cent as per the new GST rates, compared to the earlier 28 per cent (plus 3 per cent cess).

Hybrids and EVs

Hybrid cars will continue to be taxed at the same GST rates as that of the equivalent petrol or diesel vehicles. The taxation rate for EVs remains unchanged however, with a GST rate of 5 per cent.

The new GST rates will be coming into effect from September 2022, and these will likely impact buying decisions, especially when it comes to buyers in the market for smaller cars and motorcycles.