The Goods and Services Tax (GST) Council has rolled out GST 2.0 reforms from 22 September 2025, simplifying the tax system and making vehicles more affordable. The reform merges multiple tax slabs into two primary rates—5% and 18% while removing the GST compensation cess.
For the automotive sector, this means significant price reductions across hatchbacks, sedans, SUVs, and electric vehicles (EVs). Automakers like Maruti Suzuki, Hyundai, Tata Motors, Mahindra, Toyota, Renault, Skoda, and Kia have already revised their price lists to pass on the benefits to consumers.
What is GST on Cars?
GST on cars is levied on the ex-showroom price (factory cost + dealer margin + freight, excluding road tax and insurance).
Earlier, buyers paid 28% GST + additional cess (1%–22%), which made on-road prices much higher. Under GST 2.0, the cess is removed, reducing the overall tax burden.
GST 2.0: New Tax Rates on Vehicles
| Vehicle Category | Earlier Tax (GST + Cess) | New GST 2.0 Rate | Impact |
|---|---|---|---|
| Small Cars | 28% + 1–3% cess | 18% | Cheaper |
| Two-Wheelers (up to 350cc) | 28% | 18% | Cheaper |
| Three-Wheelers & Buses | 28% | 18% | Cheaper |
| Trucks | 28% | 18% | Cheaper |
| Mid-Size Cars | 28% + up to 15% cess | 40% | Slightly higher GST but overall cheaper due to cess removal |
| SUVs | 28% + 22% cess | 40% | Still expensive but simpler pricing |
| Electric Vehicles (EVs) | 5% | 5% | No change – continues low tax |
| Auto Parts | 28% | 18% | Cheaper |
Car Price Reductions Under GST 2.0
From 22 September 2025, car prices are dropping significantly:
- Small cars & two-wheelers: ₹65,000 – ₹1.2 lakh cheaper
- Mid-size sedans: ₹1.5 lakh – ₹2.2 lakh cheaper
- SUVs: ₹2.5 lakh – ₹3.5 lakh cheaper
- EVs: No major change (continue at 5% GST, lowest among all vehicles)
This is expected to boost festive season sales and encourage first-time buyers and families to upgrade.
Advantages of GST 2.0 for Buyers
- ✅ Affordable small cars and two-wheelers
- ✅ Lower SUV and mid-size car prices due to cess removal
- ✅ Simplified tax system with only two slabs (5% & 18%)
- ✅ Boost to EV adoption with 5% GST retained
- ✅ Lower auto part prices → reduced maintenance costs
Disadvantages of GST 2.0
- ❌ Luxury and imported cars remain costly due to customs duty
- ❌ SUVs taxed at 40% despite cess removal
- ❌ States may face revenue shortfalls from lower auto tax collections
FAQs on GST 2.0 and Car Prices
Q1: From when will GST 2.0 be implemented?
GST 2.0 comes into effect on 22 September 2025.
Q2: How much cheaper will cars become under GST 2.0?
Car prices may drop between ₹65,000 and ₹3.5 lakh, depending on the model.
Q3: Will SUVs remain expensive under GST 2.0?
Yes, SUVs will now attract 40% GST, but prices may still reduce compared to earlier due to cess removal.
Q4: What is the GST rate on EVs under GST 2.0?
EVs continue to enjoy a 5% GST rate, making them the most affordable in terms of tax.
Q5: Are auto parts cheaper under GST 2.0?
Yes, auto parts now fall under 18% GST instead of 28%, reducing repair and maintenance costs.
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