Relief for small cars; SUVs and heavy bikes to attract 40% GST
The Goods and Services Tax (GST) Council on Wednesday reduced levies on small cars and mass-market motorcycles (engine size below 350cc). However, premium cars, including sports utility vehicles (SUVs), will now attract a 40% GST. The Council made no changes to the GST rate for electric vehicles (EVs) across segments. GST on electric two-wheelers, small electric cars, electric SUVs, and luxury electric cars will continue at 5%.
In a blow to Royal Enfield and other premium bikemakers, the GST rate on motorcycles with engine capacity exceeding 350cc has been increased from 28% to 40%. Plug-in hybrid vehicles with larger engine capacity or longer body length also fall in the 40% tax bracket.
The Council clarified that GST on petrol, LPG, or CNG-driven motor vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000 mm will be reduced from 28% to 18%. Most small cars, compact sedans, and entry-level SUVs fall in this category.
A similar cut applies to diesel-driven vehicles with engine capacity not exceeding 1500cc and length not exceeding 4000 mm. For two-wheelers, motorcycles (including mopeds and auxiliary motor cycles) with engine capacity up to 350cc will also see GST reduced from 28% to 18%.
The reduction in levies on small cars and motorcycles is expected to benefit automakers such as Maruti Suzuki, Hyundai, Tata Motors, and most two-wheeler manufacturers. Finance Minister Nirmala Sitharaman, who chaired the 56th GST Council meeting, said the revised rates will take effect from September 22, 2025.
Additionally, a 10% reduction will apply to motor vehicles cleared as ambulances, road tractors for semi-trailers with engine capacity above 1800cc, and three-wheeled vehicles. On the other hand, the GST rate on most SUVs and premium sedans has been raised sharply—from 28% to 40%. This applies to petrol vehicles with engine capacity exceeding 1200cc or length exceeding 4000 mm, as well as diesel vehicles with engine capacity above 1500cc and length over 4000 mm.
Currently, mid-size and large cars attract 28% GST plus a compensation cess of 17–22%, leading to an overall tax incidence of 45–50%. Under the new regime, they will be taxed at a flat 40% with no cess.
At present, passenger vehicles fall under multiple slabs combining GST and cess. Small cars are taxed at 28%, while large cars (above 4 metres in length and 1200cc engine capacity) face a combined rate of 43–50%. Two-wheelers with engines up to 350cc are taxed at 28%, while those above 350cc currently face 28% GST plus 3% cess.