GST on Cars and Bikes 2025: New 18% and 40% Rates

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.

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:

• Small car (18%): petrol, CNG or LPG engine up to 1200cc, or diesel engine up to 1500cc, and overall length under 4000 mm (4 metres). All three conditions must hold.
• Large car / SUV (40%): petrol engine above 1200cc or diesel above 1500cc, and length above 4000 mm. This catches most mid-size sedans, SUVs and premium hatchbacks.
• Two-wheeler below 350cc (18%): covers the overwhelming majority of commuter and mid-segment bikes and scooters sold in India.
• Two-wheeler 350cc and above (40%): higher-displacement and premium motorcycles.
• Electric vehicle (5%): any EV, two-wheeler to premium car, stays in the lowest slab.

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:

• Large cars and SUVs: Before the reform these vehicles paid 28% GST plus a compensation cess that ran as high as 22%, taking the effective burden to roughly 50% for the biggest SUVs. The reform replaced that stack with a single 40% rate and no separate cess. So for many large cars and SUVs the total tax actually fell or stayed roughly flat. The 28-to-40 jump is a presentational change (cess folded into one rate), not necessarily a real price rise.
• Big bikes (350cc and above): These genuinely got costlier. The old burden was around 28% plus a small cess, and the new flat 40% is higher than that. Buyers of premium motorcycles should expect a real increase.

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):

• Old GST at 28%: ₹1,68,000 tax.
• New GST at 18%: ₹1,08,000 tax.
• You save: ₹60,000 on the GST component alone.

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.)

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.

• Press Information Bureau, Recommendations of the 56th GST Council https://www.pib.gov.in
• ClearTax, GST on SUV cars in India, latest rates and compensation cess https://cleartax.in/s/gst-on-suv-cars
• CarDekho, GST rate cut for cars, cess removed https://www.cardekho.com

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