The 56th GST Council meeting, held on 3rd September 2025 in New Delhi, has once again brought the focus back on India’s automobile sector. Car buyers and manufacturers are keeping a close watch as the tax burden on vehicles continues to play a crucial role in pricing. The GST rates on cars vary depending on engine capacity, length, and vehicle type, making it essential for consumers to understand the updated slabs.
Current GST Rates on Cars in India
The Goods and Services Tax (GST) structure for cars is among the highest in the country’s tax regime. Unlike essential commodities, cars fall under the luxury and sin goods category, which attracts 28% GST plus compensation cess.
Here’s the updated breakdown:
1. Small Petrol Cars
- Engine Capacity & Size: Up to 1200cc, less than 4 meters in length
- GST Rate: 28%
- Compensation Cess: 1%
- Total Tax Rate: 29%
2. Small Diesel Cars
- Engine Capacity & Size: Up to 1500cc, less than 4 meters in length
- GST Rate: 28%
- Compensation Cess: 3%
- Total Tax Rate: 31%
3. Mid-Sized Cars
- Engine Capacity & Size: Above 1200cc (petrol) or 1500cc (diesel)
- GST Rate: 28%
- Compensation Cess: 15%
- Total Tax Rate: 43%
4. Luxury Cars
- Engine Capacity & Size: Above 1500cc
- GST Rate: 28%
- Compensation Cess: 20%
- Total Tax Rate: 48%
5. SUVs (Sports Utility Vehicles)
- Engine Capacity & Size: Above 1500cc and more than 4 meters in length
- GST Rate: 28%
- Compensation Cess: 22%
- Total Tax Rate: 50%
6. Electric Vehicles (EVs)
- Engine Capacity: All capacities
- GST Rate: 5%
- Compensation Cess: 0%
- Total Tax Rate: 5%
Key Discussion from the 56th GST Council Meeting
During the 56th GST Council meeting in New Delhi, one of the major talking points was the need to balance revenue collection with consumer affordability. While no immediate reduction was announced for petrol and diesel cars, the Council reiterated its commitment to promoting EV adoption by maintaining a low 5% GST rate.
Finance Ministry officials highlighted that the current tax regime ensures environmental goals are supported, as EVs become more attractive in comparison to high-taxed petrol and diesel vehicles. Industry insiders, however, continue to push for a rationalization of cess on mid-sized and luxury cars to boost demand in the segment.
Impact on Car Buyers and the Auto Industry
- Higher Cost of Ownership for Conventional Cars
With total tax rates reaching up to 50% for SUVs, conventional car buyers continue to face high upfront costs. - Boost for Electric Vehicles
The 5% GST rate on EVs is the lowest slab in the automobile category, which is expected to further accelerate India’s EV adoption roadmap. - Pressure on Manufacturers
Car makers remain under pressure to balance pricing strategies, as higher taxes affect demand in both mid-sized and luxury categories.
Final Thoughts
The GST structure on cars in India highlights the government’s dual strategy: maintaining high tax slabs for traditional fuel cars while incentivizing the adoption of eco-friendly electric vehicles. The 56th GST Council meeting reinforced this direction, keeping EVs affordable while retaining steep cess rates on luxury and SUV segments.
For consumers, the message is clear: EVs are the future, and opting for them could mean substantial savings in terms of tax burden.
Disclaimer:- This article is based on the GST rate structure available as of September 2025 and discussions held during the 56th GST Council meeting in New Delhi. Any future changes or notifications by the GST Council or Finance Ministry may alter these rates.