Automobile GST in India: Rates, Car Prices & Tax Impact Explained 2025
Automobile GST refers to the Goods and Services Tax levied on the manufacture, sale, and purchase of vehicles in India. Before GST, vehicle buyers were charged multiple indirect taxes such as excise duty, VAT, entry tax, and octroi. These layered taxes increased the final price of cars and lacked transparency.
After GST implementation, a single national tax structure replaced earlier taxes. However, for certain vehicles, especially luxury cars and SUVs, the government levies an additional compensation cess. The GST on new vehicle purchase is calculated on the ex-showroom price and varies based on vehicle size, engine capacity, and fuel type.
To understand GST compliance in detail, you can also refer to our guide on GST registration in India for businesses.
Automobile GST Rate in India
Car GST Percentage Structure
Automobile GST Rate in India
Car GST Percentage Structure
| Vehicle Type | Engine Criteria | GST Rate | Cess | Total Tax |
|---|---|---|---|---|
| Small Cars | Petrol ≤ 1200cc / Diesel ≤ 1500cc | 28% | 1–3% | 29–31% |
| Mid-size Cars | Above small car limit | 28% | 15% | 43% |
| Luxury Cars | Premium segment | 28% | 22% | 50% |
| SUVs | Length > 4 meters | 28% | 22% | 50% |
| Electric Vehicles | All models | 5% | Nil | 5% |
The automobile GST rate in India is designed to promote affordability and clean mobility. Electric vehicles attract the lowest GST, while luxury cars face the highest tax burden due to higher cess.
For official GST rate notifications, you can refer to GST rates published by the Government of India (External: gst.gov.in).
GST on Vehicle Purchase: Step-by-Step Process
How GST Is Applied on a New Car
- The manufacturer fixes the ex-showroom price of the car
- GST of car is applied as per the applicable slab
- Compensation cess is added if applicable
- Dealer issues a GST-compliant invoice
- Road tax, registration fees, and insurance are added separately
Individual buyers cannot claim GST refunds. Businesses planning vehicle purchases must have proper GST registration, which can be completed using a virtual office address for GST registration if a physical office is unavailable.
Documents Required for GST-Compliant Vehicle Purchase
For Individual Buyers
- PAN card
- Aadhaar card
- Address proof
For Businesses
- GST registration certificate
- Company PAN
- Authorized signatory proof
- Invoice with GST breakup
New entities must complete company registration first, followed by GST registration using a valid business address.
Impact of Automobile GST on Car Prices
GST significantly impacts cars prices and the overall value of cars, especially when comparing small and luxury segments.
Prices of New Cars After GST
Prices of New Cars After GST
| Car Category | Base Price | GST + Cess | Final Price |
|---|---|---|---|
| Small Car | ₹6,00,000 | ₹1,80,000 | ₹7,80,000 |
| Mid-size Car | ₹10,00,000 | ₹4,30,000 | ₹14,30,000 |
| Luxury Car | ₹25,00,000 | ₹12,50,000 | ₹37,50,000 |
This explains why luxury cars and SUVs are much costlier compared to small cars under GST.
Automobile GST: Pre-GST vs Post-GST Comparison
Pre-GST vs Post-GST: Automobile Tax Comparison
| Factor | Pre-GST | Post-GST |
|---|---|---|
| Tax Structure | Multiple taxes | Single GST + Cess |
| Transparency | Low | High |
| Tax Calculation | Complex | Simplified |
| Small Car Prices | Higher | Lower |
| Luxury Car Prices | Moderate | Higher |
The GST system simplified taxation but increased costs for premium segments.
GST on Different Car Models and Segments
- Small cars remain affordable because of lower cess
- Mid-size cars face moderate GST impact
- Luxury cars attract the highest tax slabs
- Electric vehicles receive GST incentives
Businesses purchasing fleets should review GST input tax credit eligibility rules before finalizing car models.
Pros and Cons of Automobile GST
Advantages
- Uniform automobile GST rate across India
- Better transparency in pricing
- Elimination of cascading taxes
- Lower GST on small and electric cars
- Simplified indirect tax compliance
Disadvantages
- High tax burden on luxury cars
- No GST credit for personal buyers
- Increased on-road prices for premium vehicles
Proper tax planning services for businesses can reduce long-term financial impact.
GST Planning with Virtual Office and Company Registration
Businesses purchasing vehicles for commercial use often combine:
- Company registration
- GST registration
- Virtual office setup
- Professional tax planning
This structure ensures compliance while controlling costs. Learn more about how virtual offices support GST compliance.
Frequently Asked Questions (FAQ)
1. What is GST on new vehicle purchase?
GST on new vehicle purchases ranges from 5% to 28%, plus a compensation cess of up to 22%, depending on the car category.
For a complete GST overview, check:
👉 https://easemyoffice.in/blog/https-easemyoffice-in-blog-gst-registration-in-1-day/
2. Is GST applicable on used cars?
Yes. Used cars attract GST under the margin scheme, where tax applies only to the dealer’s profit.
For deeper tax insights, visit:
👉 https://easemyoffice.in/blog/tax-planning-in-india-guide-2025/
3. Can businesses claim GST on car purchase?
Yes — businesses can claim input tax credit if the car is strictly used for business purposes.
Many companies also verify their MSME status for benefits:
👉 https://easemyoffice.in/blog/how-to-check-msme-registration-by-gst-number/
For more tax optimization, explore:
👉 https://easemyoffice.in/blog/tax-planning-in-india-guide-2025/
4. Why is GST higher on luxury cars?
Luxury cars attract higher GST + cess due to large engines, premium features, and higher fuel consumption.
Business owners planning high-value buys can optimize taxes here:
👉 https://easemyoffice.in/blog/tax-planning-in-india-guide-2025/
5. Is road tax included in GST?
No. Road tax is a state-level charge and is not part of GST.
For GST-related compliance steps, read:
👉 https://easemyoffice.in/blog/https-easemyoffice-in-blog-gst-registration-in-1-day/
To verify MSME eligibility via GST:
👉 https://easemyoffice.in/blog/how-to-check-msme-registration-by-gst-number/
