The Goods and Services Tax (GST) Council has nodded on a sweeping overhaul of automobile taxation. As a result, this move will have a direct impact on car and two-wheeler prices across the country. Starting September 22, 2025, the first day of Navaratri, the revised structure will simplify the tax slabs and change the way vehicles are priced. Here’s a quick look at who wins, who loses and other frequently asked questions.
New taxation slabs explained for cars, bikes etc
Under the new system, small cars and entry-level motorcycles will become significantly cheaper. Petrol, LPG and CNG cars with engines below 1,200 cc and diesel cars up to 1,500 cc, provided they are not longer than 4,000 mm, will now attract 18% GST instead of the current 28%.
This means popular models like the Maruti Swift, WagonR, Hyundai i20, Tata Altroz, Renault Kwid, and Hyundai Exter are set to see lower sticker prices. The same benefit extends to commuter motorcycles up to 350 cc, including mass-market bestsellers like the Hero Splendor, Honda Shine, TVS Apache, Bajaj Pulsar range and even the RE Classic and Hunter 350 models.
The changes also extend to commercial vehicles. Three-wheelers, buses and trucks, as well as ambulances, will now be taxed at 18% instead of 28%. Small hybrids will also see a reduction, while electric vehicles remain at the lowest slab of 5%.
However, the new structure also brings pain for premium buyers. All mid-size and large cars (those exceeding 1,200 cc petrol or 1,500 cc diesel engines, or measuring longer than 4,000 mm) will now attract a flat 40% GST.
This category includes popular SUVs like the Hyundai Creta, Kia Seltos, Tata Harrier, Mahindra XUV700, Toyota Fortuner and more. Similarly, motorcycles above 350 cc will also face a 40% levy, pushing up prices of models like the Royal Enfield Himalayan 450, KTM Duke 390, Harley-Davidson X440, Triumph Speed 400 and others.
At present, bigger cars attract 28% GST plus a compensation cess of 17–22%, taking the overall tax incidence close to 50%. The new flat rate of 40% simplifies means that there will be no additional compensation cess; thus bringing the overall burden down.
Rajesh Jejurikar, ED & CEO - Auto and Farm Sectors, Mahindra & Mahindra said “We applaud the Government for this landmark GST rationalisation, which will have a far-reaching positive impact across the automotive and farming sectors . The move makes tractors and farm machinery more affordable for farmers, reduces costs for commercial vehicles and improves accessibility for personal mobility through rationalisation of rates across all SUVs. Together, these measures are expected to stimulate demand, and drive inclusive growth across the entire ecosystem."
Arnab Banerjee, MD & CEO, CEAT Limited added ”We welcome the GST Council’s decision to rationalise tax rates in the tyre sector. The reduction of GST on new pneumatic tyres from 28% to 18%, and the further relief for tractor tyres and tubes to 5%, is a progressive step that will significantly benefit the industry. This reform will make tyres more affordable for customers across commercial, agricultural, and passenger vehicle segments, while also supporting rural mobility through lower input costs for farmers.”
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