Cars and Bikes that Get Cheaper under GST 2.0. GST Reduction on Cars in India 2025. The introduction of GST 2.0 in India on September 22, 2025, marks a significant reform in the taxation structure for vehicles, making automobiles notably more affordable across different segments.
Cars and Bikes that Get Cheaper under GST 2.0
This reform replaces the earlier complex GST regime of multiple slabs plus a compensation cess with a simplified GST system aimed at reducing the overall tax burden on buyers and streamlining compliance for manufacturers.
Key Details of GST 2.0 Vehicle Tax Changes:
- Simplified Tax Slabs: GST rates for vehicles are now categorized mainly into three slabs: 18%, 40%, and 5%. Small cars and bikes attract 18%, luxury cars and large SUVs face 40%, while electric vehicles get a concessional 5% rate with no additional cess.
- Elimination of Compensation Cess: Previously, vehicles had a base GST of 28% plus a variable compensation cess ranging from 1% to 22%, significantly increasing the tax burden. GST 2.0 abolishes this cess for almost all categories (except some imported luxury cars), leading to a consolidated lower effective tax rate.
- Small Petrol and Diesel Cars: Petrol cars with engines up to 1200cc and diesel vehicles up to 1500cc, and length under 4 meters, now attract an 18% GST rate, down from 28% plus cess. This provides a direct price benefit to popular hatchbacks and compact sedans, as well as mid-size sedans below these engine limits.
- Luxury Cars and SUVs: Larger vehicles now attract a 40% GST rate. Previously, these vehicles faced combined GST plus cess close to 50%, so this change actually lowers the effective tax despite the higher base GST slab.
- Electric Vehicles: Continue enjoying a low 5% GST without any cess, supporting the government's push towards greener mobility.
Impact on Consumer Prices:
- The GST reduction lowers the ex-showroom price of vehicles, leading to immediate savings at the point of purchase.
- On-road prices also decrease because road tax and insurance, which are calculated as percentages of the ex-showroom price, come down proportionally.
- Price cuts vary by manufacturer and model, typically ranging from Rs 40,000 on entry-level cars to several lakh rupees on luxury vehicles.
Examples of Price Reductions Under GST 2.0:
- Mahindra: Price cuts up to Rs 1.56 lakh on models like Bolero Neo, XUV 3XO, Thar range, Scorpio, and XUV700.
- Tata Motors: Cuts up to Rs 1.55 lakh on Tiago, Nexon, Harrier, Safari, and Altroz.
- Maruti Suzuki: Reductions up to Rs 1.29 lakh on S-Presso, Alto K10, Swift, Dzire, Brezza, and Fronx.
- Toyota: Large reductions up to Rs 3.49 lakh on the Fortuner, Legender, Innova Crysta, and Innova Hycross.
- Honda Cars: Cuts on Amaze (up to Rs 95,500), City, and Elevate models.
- Range Rover: Significant cuts on high-end models, up to Rs 30.4 lakh reduction.
For Bikes:
Motorcycles and scooters with engine capacities up to 350cc, such as Honda Activa and Shine, are now taxed at 18%, down from higher rates, resulting in noticeable price drops.
Broader Benefits and Market Impact:
- The reform boosts vehicle affordability, especially benefiting the middle class and first-time buyers.
- It simplifies tax compliance for manufacturers and dealers by reducing the number of GST slabs and removing the variable cess.
- Lower vehicle prices are likely to stimulate sales during the festive season and beyond.
- Ancillary costs like vehicle insurance and registration fees are also reduced due to their linkage to the ex-showroom price, offering further savings to buyers.
- The move aligns with India’s objectives to promote electric vehicles, reduce pollution, and support the automobile industry's growth.
Cars and Bikes that Get Cheaper under GST 2.0
In summary, GST 2.0 introduces a customer-friendly tax regime that lowers vehicle costs substantially across categories, from small hatchbacks and motorcycles to luxury SUVs and electric vehicles.
This initiative is expected to revitalize demand, enhance affordability, and contribute broadly to the automotive sector’s health in India.
