Description
The Indian automobile sector is undergoing a major transformation with the government’s revised Goods and Services Tax (GST) structure for cars, effective from September 22, 2025. Until recently, car buyers had to navigate a complicated tax regime that included a base GST rate of 28 percent plus a varying compensation cess of up to 22 percent, depending on the size, length, and engine capacity of the vehicle. This created confusion, price disparities, and heavy costs, particularly for larger cars and SUVs.
The new GST system simplifies the structure by introducing just two major slabs for cars: 18 percent and 40 percent. Small cars, defined as petrol, LPG, or CNG vehicles up to 1,200 cc and diesel cars up to 1,500 cc with a length under four meters, will now attract an 18 percent GST rate. This is a significant reduction from the previous combined rate, making compact and budget-friendly cars much more affordable for first-time buyers and middle-class households.