The Centre has announced a reduction in GST for small cars and three-wheelers, while rates for mid-sized and large vehicles have been increased. The revised slabs – 5% and 18% – will come into effect from September 22, the first day of Navaratri. In what is touted as the “big Diwali gift” to the nation, the government has reduced GST on small cars to 18%, whereas mid-size and large cars will attract 40% GST. However, there is a catch. Luxury cars won’t get more expensive; they’ll actually become cheaper.
The 40% GST rate applies not just to mid-size and large cars but also to utility vehicles such as SUVs, XUVs, MUVs, and MPVs. These vehicles must have an engine capacity above 1500 cc, a length exceeding 4000 mm, and a ground clearance of 170 mm or more. Notably, the new 40% rate is without any additional cess.
At present, vehicles are taxed at a 28% GST rate, plus a compensation cess of 17% to 22%. This brings the total tax burden to between 45% and 50%.
GST rates on small cars
Small cars will now have their GST reduced from 28% to 18%. According to the Ministry of Finance, small cars are defined as four-wheelers with petrol, LPG, or CNG engines up to 1200 cc and a length of up to 4000 mm.
For diesel cars, the engine capacity and length should not exceed 1500 cc and 4000 mm, respectively.
GST rates on other vehicles
1- Three-wheelers: The GST rates on three-wheelers, which have been classified under HSN 8703, have been reduced by 10%. The new GST rate will be 18% from the earlier 28%.
2- Buses: The vehicles classified under HSN 8702 will also see a GST rate of 18%. They fall under the category of motor vehicles, which are designed to transport ten or more people, including the driver.
3- Ambulances: The vehicles, fitted with all equipment and furniture required for an ambulance, will attract a GST rate of 18% from 28%.
4- Transport vehicles: Lorries and trucks, which are categorised under transport vehicles (HSN 8704), will also be cheaper. They will attract 18% GST.
5- Trailers of tractors: The trailers and semi-trailers of tractors with 1800 cc and non-road tractors will be taxed at 5%. Road tractors for semi-trailers above 1800 cc engine capacity will see a GST drop from 28% to 18%.
The Finance Ministry explained that this measure provides relief to farmers while maintaining input tax credits for producers.
6- Motorcycles: Bikes with a 3500 cc engine or less will have a rate of 18% GST, while those exceeding that engine capacity will attract 40% GST.
New GST rates on vehicles: Full list
| Description | GST rate (Current) | GST rate (New) |
| Fuel cell vehicles, including hydrogen ones | 12% | 5% |
| Tractors | 12% | 5% |
| Road tractors for semi-trailers of over 1800 cc engine | 28% | 18% |
| Vehicles that can carry ten or more people, including driver (other than buses) | 28% | 18% |
| Vehicles to ‘transport’ people, including station wagons and racing cars (excluding the above) | 28% | 40% |
| LPG or CNG vehicles (up to 1200 cc engine, 4000 mm length) | 28% | 18% |
| Diesel vehicles (up to 1500 cc engine, 4000 mm length) | 28% | 18% |
| Ambulances | 28% | 18% |
| Three-wheelers | 28% | 18% |
| Small hybrid vehicle (1200 cc engine, length 4000 mm) | 28% | 18% |
| Large hybrid vehicle (over 1200 cc engine, length exceeding 4000 mm) | 28% | 18% |
| Small diesel hybrid vehicle (1500 cc engine, length 4000 mm) | 28% | 18% |
| Large diesel hybrid vehicle (over 1500 cc engine, length exceeding 4000 mm) | 28% | 40% |
| Transport vehicles [other than refrigerated one which is already at 18%] | 28% | 18% |
| Chassis fitted with engines | 28% | 18% |
| Bodies, including cabs | 28% | 18% |
| Tanks and other armoured fighting vehicles | 12% | 5% |
| Bikes, including mopeds, cycles with auxiliary motor (engine capacity 350 cc) and side cars | 28% | 18% |
| Bikes (over engine capacity 350 cc) | 28% | 40% |
| Bicycles, tricycles (not motorised) | 12% | 5% |
| Self (loading and unloading) trailers; carts, rickshaws and others hand propelled vehicles, animal-drawn carts | 12% | 5% |
The new 40% GST is considered a special rate, as it applies only to a small number of items, primarily luxury and ‘sin’ goods. This is because the government decided to end the compensation cess. To ensure the total tax on these products doesn’t drop, the cess is being merged with the GST rate itself. This special rate also applies to other goods and services that were previously subject to the highest 28% GST rate. This change is part of a larger plan by the GST panel to simplify the tax structure, moving from four slabs (5%, 12%, 18%, and 28%) to a simpler two-rate system of 5% and 18%.