If you are planning to buy a car or a two-wheeler, the GST 2.0 reform that took effect on 22 September 2025 changes the on-road price more than any festive discount ever did. Small cars and most bikes now carry far less tax, while big cars and high-power motorcycles moved to a single 40% rate with the old compensation cess scrapped. Here is exactly which slab your vehicle falls in and what it means for the price you pay.
Quick answer: From 22 September 2025, small cars (petrol up to 1200cc, diesel up to 1500cc, under 4 metres) and two-wheelers below 350cc dropped from 28% GST to 18%. Large cars, SUVs and bikes of 350cc and above move to a flat 40% GST, with the earlier compensation cess removed.
| Vehicle category | Old GST (incl. cess) | New GST from 22 Sep 2025 |
|---|---|---|
| Small car (petrol up to 1200cc / diesel up to 1500cc, under 4 m) | 28% + small cess | 18% |
| Large car / SUV (above 1200cc petrol or 1500cc diesel, over 4 m) | 28% + cess up to 22% (up to ~50% effective) | 40% (no cess) |
| Two-wheeler below 350cc | 28% + small cess | 18% |
| Two-wheeler 350cc and above | 28% + small cess | 40% |
| Electric vehicle (any size) | 5% | 5% |
The single most important thing to understand: for big cars the headline rate went up (28 to 40), but because the compensation cess was folded in and removed, the total tax burden often stayed flat or fell. The numbers do not always mean what the headline suggests, so read the sections below before you assume your dream car got dearer.
The slab is decided by engine capacity, fuel type and length, not by brand or price tag. Check the spec sheet:
If your car is borderline (a sub-4-metre SUV with a small engine, for instance), it qualifies for 18%. A longer body or a bigger engine pushes it to 40%.
This is the clear win for ordinary buyers. The mass-market segment, where most Indian families and first-time buyers shop, dropped from 28% to 18% GST. That is a straight 10 percentage point cut on the taxable value, and because the old cess on these vehicles was small, the saving flows almost fully to the buyer. Manufacturers passed on revised ex-showroom prices soon after 22 September 2025. Two-wheelers below 350cc, which make up the bulk of bikes and scooters on Indian roads, got the same 28-to-18 cut.
Here honesty matters. The 40% slab reads like a sharp increase, but it works differently for cars and bikes:
So treat “big cars went up” with caution. Check the actual ex-showroom price your dealer quotes now against the pre-22-September price, because for SUVs the single 40% rate can mean the same or even a lower out-the-door tax than the old 28%-plus-cess combination.
EVs were left untouched and continue to attract just 5% GST, from electric two-wheelers all the way to premium electric cars. This is the lowest slab in the system and reflects the policy push for green mobility. Note that EV batteries and chargers are taxed separately (commonly at 18%), so confirm those line items if you are buying accessories. For the rest, the EV remains the most lightly taxed vehicle category by a wide margin.
Take an illustrative small petrol hatchback with an ex-showroom taxable value of ₹6,00,000 (figure used only to show the math):
The actual rupee saving scales with the price of the car, and dealers reflect it in the revised ex-showroom figure. For a sub-4-metre family car this is real, immediate money back in the buyer's pocket. (This is illustrative math, not a quote for any specific model.)
Real-life example: Kashvi Pathak had been eyeing a sub-4-metre petrol hatchback for months. When she compared the pre-reform quote with the price after 22 September 2025, the GST on her chosen variant had fallen from 28% to 18%. On a roughly ₹6 lakh ex-showroom value, that worked out to about ₹60,000 less tax. She timed her booking for after the new rates kicked in and used the saving towards her insurance and registration.
From 22 September 2025, following the 56th GST Council meeting held on 3 September 2025.
Small cars (under 4 m, petrol up to 1200cc or diesel up to 1500cc) became clearly cheaper, dropping from 28% to 18%. For large cars and SUVs the single 40% rate often kept the total tax flat or lower than the old 28%-plus-cess, because the cess was removed.
Bikes and scooters below 350cc are taxed at 18% (down from 28%). Motorcycles of 350cc and above are taxed at 40%.
It must be under 4000 mm long and have a petrol/CNG/LPG engine up to 1200cc or a diesel engine up to 1500cc. All conditions must be met to qualify for 18%.
Yes. The earlier compensation cess that stacked on top of 28% has been subsumed. Large cars and SUVs now pay a single 40% GST with no separate cess.
EVs of all sizes continue at 5% GST. EV batteries and chargers are taxed separately, commonly at 18%, so check those items.
Not necessarily. The headline GST rose from 28% to 40%, but the old effective burden with cess could reach around 50%. Compare your dealer's current ex-showroom price against the pre-22-September figure to see the real difference.
GST applies to the taxable (ex-showroom) value of the vehicle. Registration, insurance and other on-road charges are separate and follow their own rules.