GST on cars

A new car is taxed at either 18% or 40% — and two numbers on its spec sheet decide which: engine capacity and length. Electric cars pay 5%. These rates apply from 22 September 2025, and there is no longer a compensation cess on top.

Hybrids are sorted by the same engine-and-length test as any other petrol or diesel car.

Both limits have to be met

A car only gets the 18% rate if it is inside both limits. Being under one is not enough:

• A compact SUV just under 4 metres long but with a 1.5-litre petrol engine is over the engine limit, so it pays 40%.
• A sedan with a 1.2-litre petrol engine but 4.4 metres long is over the length limit, so it also pays 40%.
• A hatchback with a 1.2-litre petrol engine and under 4 metres long passes both, so it pays 18%.

The same model can sit in different slabs depending on the variant — a petrol version under the engine limit and a bigger-engined petrol version over it will carry different rates. Check the engine capacity of the exact variant you are buying.

How much GST is in the ex-showroom price

The ex-showroom price already includes GST. To see how much of it is tax, take the GST back out:

Take 18% out of a price →   Take 40% out of a price →

What changed in September 2025

Before 22 September 2025, every car paid 28% GST plus a compensation cess of between 1% and 22% depending on its size — roughly 29% all-in for a small petrol car and up to about 50% for a large SUV. The restructuring removed the cess and replaced the whole ladder with two rates.

For a small car that is a real cut: on a car worth ₹7,00,000 before tax, going from about 29% to 18% is roughly ₹77,000 less tax. Large cars and SUVs also came down, from around 43–50% to a flat 40%.

From ex-showroom to on-road price

The on-road price adds several charges on top of the ex-showroom figure, and not all of them are GST:

• Road tax and registration — state charges, not GST. They vary a lot from state to state.
• Insurance — motor insurance premiums carry 18% GST.
• Accessories and extended warranty — usually billed separately, generally at 18%.
• TCS of 1% on cars above ₹10 lakh — this is an income-tax collection, not GST. It is credited against your income tax, so you can claim it back when you file.

Frequently asked

Is there GST on a used car?

Not when you buy from another individual. A registered used-car dealer pays 18% GST on their margin — the difference between what they paid for the car and what they sell it for — and that is normally already built into their price.

Can a business claim GST back on a car?

Generally not. Input tax credit on passenger cars is blocked for most businesses, with narrow exceptions such as taxi and cab operators, driving schools and car dealers buying stock to resell. Ask your accountant before assuming a company car is claimable.

Do car parts and servicing carry 18% or 40%?

Most auto parts and servicing are at 18%, whatever slab the car itself is in.

Does it matter which state I buy the car in?

Not for the GST rate — it is the same everywhere. A car bought from a dealer in your own state shows CGST + SGST at half the rate each. Road tax, however, is charged by the state where the car is registered.

Before you rely on this

This page is a plain-language reference, not the official schedule. The exact rate for a specific vehicle depends on its classification and the manufacturer's homologated specifications. For a business purchase, a fleet decision or a disputed invoice, confirm against the current CBIC notification or ask a qualified tax professional. If something here looks wrong, tell us.

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