Until now, all passenger vehicles except EVs attracted 28 per cent GST plus a cess of up to 22 per cent, depending on configuration.The Goods and Services Tax (GST) overhaul announced by Prime Minister Narendra Modi last month has come into force, reshaping the tax landscape for India’s automobile sector. The reforms, part of the new “GST 2.0” framework, cut rates for small cars and two-wheelers while raising levies on luxury vehicles and high-end electric cars.
Under the new rules, cars longer than four metres with petrol engines above 1,200cc or diesel engines above 1,500cc are categorised as luxury goods and will attract a 40 per cent GST, Economic Times reports. The same rate applies to mid-size and large cars, as well as utility vehicles—including SUVs, MUVs, MPVs and XUVs—with engine capacity above 1,500cc, length over 4,000 mm and ground clearance of 170 mm or more.
While the headline GST has risen sharply, the removal of the compensation cess is expected to slightly moderate the overall impact for premium buyers. Until now, all passenger vehicles except EVs attracted 28 per cent GST plus a cess of up to 22 per cent, depending on configuration. Electric vehicles were taxed at just 5 per cent.
GST 2.0 two-slab system
The shift to GST 2.0 introduces a simplified two-slab system of 5 per cent and 18 per cent, with a special 40 per cent slab reserved for sin and luxury goods. The abolition of the cess, due by October 31, is expected to reduce compliance burdens for automakers and dealers.
The reform is likely to boost demand for sub-4m petrol and diesel cars during the festive season, providing relief to cost-sensitive buyers after months of sluggish sales. Two-wheelers and compact cars are also set to benefit from the lower tax structure.
Luxury vehicles and premium EVs, however, face higher levies, which could slow momentum in India’s nascent high-end electric market. Global players such as Tesla and BYD, which have seen limited sales in India so far, may face further demand pressures under the revised regime.
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