Key Points:
- Small cars now taxed at 18% (down from 28%) and larger vehicles at 40% (down from 50%) effective September 22, 2025
- Major automakers including Tata, Hyundai, and Mahindra have announced price cuts up to ₹2.4 lakh on select models
- Hybrid vehicles benefit significantly with GST reduced from 43% to 18% for qualifying models
- Electric vehicles maintain lowest rate at just 5% GST to promote clean mobility
- Compensation cess removed on luxury cars, offsetting higher GST rate increase
New Delhi: The Indian automotive industry is witnessing a major transformation as the revised GST rates for vehicles took effect on September 22, 2025, bringing substantial price reductions across multiple vehicle categories following decisions made at the 56th GST Council meeting.
New Delhi: Under the new tax structure, small cars with petrol engines up to 1200cc and diesel engines up to 1500cc, measuring less than 4 meters in length, now attract 18% GST compared to the previous 28%. This change also applies to CNG and LPG variants meeting the same specifications, providing relief to budget-conscious consumers.
Major Price Cuts Across Popular Models
Leading automakers have already passed on the benefits to customers. Hyundai has announced price reductions ranging from ₹60,000 to ₹2.40 lakh across its portfolio. Popular models like the Nios, Aura, and Exter see price cuts of ₹73,808, ₹78,465, and ₹89,209 respectively.
The Tata Punch top variant has dropped from ₹11.95 lakh to ₹10.75 lakh on-road in Mumbai, representing a 5-7% price reduction. Similarly, the Hyundai Creta sees a price cut of nearly ₹90,000, while larger SUVs like the Mahindra XUV700 offer savings of over ₹2 lakh.
Luxury Vehicles Face Higher Rates but Lower Overall Tax
Larger vehicles exceeding the small car criteria now face 40% GST but benefit from the complete removal of compensation cess. Previously, these vehicles were taxed at 28% GST plus up to 22% cess, totaling 50% for large SUVs. The new structure reduces the overall tax burden despite the higher GST rate.
Hybrid and Electric Vehicles Get Major Boost
Hybrid vehicles meeting small car specifications now attract just 18% GST, down from the previous 43% total tax (28% GST plus 15% cess). Models like the Toyota Urban Cruiser Hyryder and Maruti Grand Vitara benefit significantly from this change.
Electric vehicles continue to enjoy the lowest tax rate at 5% GST without any additional cess, maintaining their cost advantage to promote clean mobility adoption.
Industry Optimism Despite Implementation Challenges
S&P Global Mobility’s Gaurav Vangaal noted that while the GST reduction would theoretically benefit both manufacturers and buyers, consumer uncertainty may persist due to delayed clarification, potentially causing deferred purchases in the short term.
The Federation of Automobile Dealers Associations (FADA) had earlier expressed concerns about consumers postponing purchases in anticipation of the GST cuts, but the implementation should now stabilize market demand.
The restructured GST regime represents the most significant tax reform for the automotive sector since GST implementation in 2017, with the government aiming to rationalize the tax structure by potentially eliminating the 12% and 28% slabs while retaining 5% and 18% rates.
