GST On Cars In India: Know Different Tax Rates On Various Vehicle Types

When you are buying a car, one of the biggest factors that influences its final price could be the ‘Tax’ implications associated with your purchase. In India, this translates to the Goods and Services Tax (GST). Whether it is a compact hatchback for a city drive, an SUV for a longer commute, or an electric car for a greener future, GST plays a significant role in determining how much you will end up paying. The tax structure varies based on the type of vehicle, engine size, and even fuel type, making it essential for buyers to understand how these rates work before they make the final purchase.

Here’s a detailed breakdown to understand how GST impacts car prices in India so that you know where your money is going and how government policies might save, or cost, you extra when buying the dream car.

What Is GST On Cars In India?

The GST rates on cars in India are not a one-size-fits-all affair, they range from 5 per cent to 28 per cent, depending on the type of vehicle you are buying. 

On top of this, a compensation cess, of up to 22 per cent, can be added. This layered approach has been set to ensure that different vehicle categories are taxed appropriately based on their size, purpose, and environmental impact.

For example, the lowest GST rate of 5 per cent is reserved for vehicles designed for use by people with disabilities. Meanwhile, passenger cars, SUVs, and luxury vehicles are taxed at higher slabs.

What Factors Determine GST Rate On Car?

The GST rate applicable to a car is typically determined by the following factors:

1) Engine Capacity:  Cars that have smaller engines and are compact attract lower rates. Larger vehicles, such as SUVs, fall into higher tax brackets. 

The coming of GST rates significantly reduced taxes on cars compared to pre-GST times. 

The chart below shows a differentiation of Pre and post-GST rates on cars:

Car Category Pre-GST Rate Post-GST Rate

Vehicles under 1200cc 39% 19%

Vehicles between 1200-1500cc 40% 19%

Vehicles above 1500cc 43% 30%

SUVs (1500cc engine or above) 46% 29%

2) Fuel Type: GST is also determined on the basis of how the car is powered, i.e., by petrol, diesel, or alternative fuels. Electric vehicles in this case enjoy a significant tax break.

For example:

Electric vehicles attract just 5 per cent GST, compared to the previous 18 per cent rate.

Petrol cars above 1200cc and diesel cars above 1500cc are taxed at 18 per cent.

3) Vehicle Purpose: Whether the vehicle is for personal use or commercial purposes also influences its GST rate.

4) Luxury Features: High-end cars with advanced features and amenities come with an additional tax burden.

GST On Electric Cars

To promote more adoption of electric cars, the government has slashed GST rates on EVs from 18 per cent to 5 per cent. This applies to both personal and commercial EVs.

For example, an electric car priced at Rs 10 lakh would previously have been taxed Rs 1.8 lakh under the old 18 per cent GST rate. Now, the tax amounts to just Rs 50,000, saving buyers Rs 1.3 lakh.

This policy not only makes EVs more affordable than other cars but is also a significant push towards reducing carbon emissions.

GST On SUVs and Luxury Cars

SUVs, which are typically known for their ruggedness and versatility, attract a 28 per cent GST. However, luxury SUVs and those with a large engine capacity are also subject to additional cess rates of up to 22 per cent, depending on factors like engine size and ground clearance. 

Electric SUVs, however, are levied with the same 5 per cent GST as other EVs, making them cost-effective options for many buyers.

GST On Second Hand Cars

If you are thinking of buying a second-hand car, note that a GST of 12 per cent is applied on the deal, but only on the dealer’s profit margin. For example, if a used car is purchased for Rs 5 lakh and sold for Rs 6 Lakh, GST is calculated only on the Rs 1 lakh profit. 

This has been set to keep the tax burden low for second-hand vehicle buyers.

Compensation Cess On Car Purchase

In addition to GST, some vehicles also attract a compensation cess, depending on their size, fuel type, and purpose. Here’s how it works:

Small Petrol Cars (<1200cc): 1 per cent cess

Large Petrol Cars (>1200cc): 22 per cent cess

Diesel Cars (>1500cc): Up to 22 per cent cess

Electric Cars: No cess at all

The government levies cess to fund states and ensure fairness in the tax system.

For car buyers, it would be helpful to understand how the GST works so that they can make informed decisions at the time of purchase. Whether you are planning to buy a compact car, an SUV, or an electric vehicle, GST plays a crucial role in shaping the cost and impact of your purchase.