Thursday, September 04, 2025
By Kamal Swami
Buying Cars To Get Cheaper With GST 2.0
The refined Goods and Services Tax (GST) slab, announced by Prime Minister Narendra Modi on Independence Day, has officially come into effect, bringing major changes to all sectors. The revamped GST 2.0 regime, which will be effective from September 22, significantly revises tax rates on goods and services, offering significant benefits to the automobile industry.
The new GST structure, as determined by the GST council, has two primary slabs of 5 per cent and 18 per cent. Apart from these two slabs, there is one more special slab of 40 per cent, designed for luxury goods and services. The introduction of this new GST slab determines the new definition of luxury cars in India while reducing the overall tax burden for most passenger vehicles.
Impact on Automobiles
For the mass-market segment, the GST on smaller items is lowered to 18 per cent from the earlier 28 per cent plus cess. This marks a sharp reduction for buyers who previously faced a higher total tax incidence. Meanwhile, certain petrol and diesel models have been placed under the 40 per cent slab. Petrol cars with engine capacities between 1,200 cc and 1,500 cc—such as Maruti Suzuki Brezza, Hyundai Creta, and Honda City—fall into this bracket. Similarly, diesel vehicles with engine displacement above 1,500 cc, including SUVs like Tata Harrier, Mahindra Scorpio-N, Toyota Fortuner, and Innova Crysta, will also be taxed at 40 per cent.
Lower Burden Despite Higher Slab
Despite being categorised as luxury vehicles, these models will actually witness a tax reduction. Petrol cars in the 1,200–1,500 cc range, previously taxed at 45 per cent (including cess), will now attract 40 per cent GST—marking a 5 per cent cut. Diesel vehicles above 1,500 cc, which were earlier taxed at 48 per cent, will enjoy the benefit of an 8 per cent reduction under GST 2.0.
Industry Outlook
Industry experts believe GST 2.0 will make cars more affordable across segments, especially during the upcoming festive season. With mass-market models now under the lower 18 per cent slab and larger vehicles enjoying reduced overall incidence, automakers expect a surge in bookings ahead of Diwali.
