GST on Cars & Bikes India 2025: New Rates After GST 2.0, HSN Codes & Savings Calculator
The September 22, 2025 GST 2.0 reforms delivered one of the most significant automotive tax overhauls India has seen. For the first time, the complex system of GST plus compensation cess — which made calculating the true tax on a vehicle genuinely difficult — has been replaced with a clean, single-rate structure.
- Vehicle GST now has three clean rates — 5%, 18%, and 40% — replacing the old 28% + compensation cess system.
- Small cars (≤4m, petrol ≤1200cc or diesel ≤1500cc) and bikes ≤350cc dropped to 18% from an effective ~29-31%.
- Luxury cars and bikes above 350cc moved to a flat 40%, which is actually lower than the old ~45-50% effective rate on the priciest vehicles.
- Electric vehicles stay at 5%, unchanged, keeping them the cheapest tax category for any vehicle.
- Commercial vehicles, three-wheelers, tractors, and buses moved from 28% down to 18%.
- ITC on motor vehicles remains blocked for personal use under Section 17(5), but is available for commercial passenger/goods transport vehicles.
The result: small cars and bikes below 350cc are significantly cheaper. Luxury vehicles and premium bikes above 350cc are more expensive. And EVs stay at the industry-friendly 5% rate to keep India's green mobility push alive.
Here's the complete picture.
What Changed: The Old vs New Vehicle GST Structure
The Old System (Before September 22, 2025)
The previous system was notoriously complex: GST rate (28%) plus a separate compensation cess (ranging from 1% to 22% depending on vehicle type). The combined effective tax rate on some vehicles exceeded 50%.
- Small petrol car: 28% GST + 1% cess = ~29% effective
- SUV (petrol, >4m, >1500cc): 28% GST + 22% cess = ~50% effective
- Bikes <350cc: 28% GST + 0% cess = 28%
- Bikes >350cc: 28% GST + 3% cess = ~31%
The New System (From September 22, 2025)
Three clean rates — no separate cess:
| Rate | Vehicles Covered |
|---|---|
| 5% | Electric vehicles (all), fuel-cell vehicles, vehicles for disabled persons |
| 18% | Small cars (≤4m, petrol ≤1200cc or diesel ≤1500cc), bikes ≤350cc, commercial vehicles, three-wheelers, ambulances, tractors, buses |
| 40% | Luxury cars (>4m, petrol >1200cc or diesel >1500cc), bikes >350cc, premium SUVs >2500cc |
Cars: New GST Rates with Examples
Small / Entry-Level Cars → 18% (Was 28% + cess)
| Model Type | Engine | Old Effective Rate | New Rate | Saving on ₹7 Lakh Car |
|---|---|---|---|---|
| Hatchback (petrol) | ≤1200cc | ~29% | 18% | ~₹77,000 |
| Small diesel car | ≤1500cc, ≤4m | ~30% | 18% | ~₹84,000 |
| Small CNG car | ≤4m | ~29% | 18% | ~₹77,000 |
Models that benefit: Maruti Alto K10, Swift Dzire, Fronx, Baleno, Hyundai Grand i10, Tata Punch, Tata Nexon (small diesel), Honda Amaze, and thousands of hatchbacks that form the backbone of India's passenger car market.
GST at 18%: ₹8,00,000 × 18% = ₹1,44,000 Old GST+cess: ₹8,00,000 × 29% = ₹2,32,000 Saving: ₹88,000
Mid-Size / Larger Cars → 40% (Was 28% + cess)
| Engine Type | Old Effective Rate | New Rate |
|---|---|---|
| Petrol >1200cc, >4m length | 28% + 17% cess = ~45% | 40% |
| Diesel >1500cc, >4m length | 28% + 20% cess = ~48% | 40% |
| Hybrid vehicles | 28% + cess | 18% (reclassified) |
Models affected: Toyota Innova Crysta, Mahindra Thar, Toyota Fortuner, Mahindra XUV700, Hyundai Creta (larger variants), Kia Seltos (larger engine).
For luxury cars and SUVs with the largest engines, the new 40% single rate actually represents a reduction from the old 28%+22% cess = ~50% effective rate.
Luxury Cars → 40%
Imported luxury cars, large SUVs, and high-end sedans that previously faced up to 50% effective rate now face a flat 40%. This is a simplification but still expensive:
Luxury SUV ex-showroom: ₹1 Crore GST at 40%: ₹40,00,000 Total: ₹1.4 Crore (just on GST)
Electric Vehicles → 5% (Unchanged)
EVs continue at the lowest GST rate in the automobile sector:
| EV Type | GST Rate |
|---|---|
| Electric cars (all) | 5% |
| Electric scooters | 5% |
| Electric motorcycles | 5% |
| Electric three-wheelers | 5% |
| Electric buses | 5% |
GST at 5%: ₹75,000 Total: ₹15,75,000
Compared to a similar petrol car at 18% GST on ₹12 lakh: ₹2,16,000 in GST. The EV buyer pays ₹75,000 vs ₹2,16,000 — saving ₹1,41,000 in GST alone.
Bikes and Two-Wheelers: New GST Rates
Bikes Under 350cc → 18% (Was 28%)
This is the biggest win for Indian two-wheeler buyers. Nearly 98% of motorcycles sold in India have engines below 350cc, meaning the majority of the market is now at 18% — down from 28%.
| Engine | Old Rate | New Rate | Saving on ₹1 Lakh Bike |
|---|---|---|---|
| 100cc (commuter bike) | 28% | 18% | ₹10,000 |
| 150cc (sport commuter) | 28% | 18% | ₹10,000 |
| 250cc (mid-segment) | 28% | 18% | ₹10,000 |
| 350cc exactly | 28% | 18% | ₹10,000 |
HSN Code for bikes: 8711 (motorcycles, mopeds, scooters — all engine capacities)
Models that benefit: Hero Splendor, Bajaj Pulsar (all below 400cc), Honda Activa, TVS Jupiter, Yamaha FZS, Royal Enfield Meteor 350, and virtually every mass-market bike in India.
New GST at 18%: ₹80,000 × 18% = ₹14,400 Old GST at 28%: ₹80,000 × 28% = ₹22,400 Saving: ₹8,000
Bikes Above 350cc → 40% (Was 28% + 3% cess = ~31%)
Premium motorcycles with engine capacity above 350cc moved into the new 40% luxury slab:
| Engine | Old Rate | New Rate | Impact on ₹3 Lakh Bike |
|---|---|---|---|
| 400cc (Royal Enfield Classic 350 is just below) | 28% + 3% cess = 31% | 40% | ₹27,000 more expensive |
| 650cc | ~31% | 40% | More expensive |
| 1000cc+ (superbikes) | ~31% | 40% | More expensive |
Models affected: Royal Enfield Himalayan 450, KTM 390 Duke, Kawasaki Ninja 400, BMW G310, Triumph Speed 400 (barely above 350cc at 398.15cc), Harley-Davidson X440 (440cc).
Electric Bikes → 5% (Unchanged and Preferred)
| Electric Vehicle | HSN | GST Rate |
|---|---|---|
| Electric scooters (Ola, Ather, TVS iQube) | 8703 | 5% |
| Electric motorcycles | 8711 | 5% |
| Electric bicycles | 8712 | 5% |
Commercial Vehicles → 18% (Was 28%)
| Vehicle Type | Old Rate | New Rate |
|---|---|---|
| Goods transport trucks | 28% | 18% |
| Mini-trucks / pick-ups | 28% | 18% |
| Three-wheelers (auto-rickshaws) | 28% | 18% |
| Tractors (<1800cc) | 28% | 18% |
| Buses (>10 seater) | 28% | 18% |
| Ambulances | 28% | 18% |
This is significant for logistics and agriculture. A ₹25 lakh commercial truck at 18% GST saves ₹2.5 lakh compared to 28%.
Auto Parts → 18%
The majority of the components used for the manufacture of motor cars and motor bikes have also been reduced to 18%. This simplifies supply chain management for the entire automotive ecosystem.
| Part Category | HSN | Old Rate | New Rate |
|---|---|---|---|
| Engines and parts | 8407/8408 | 28% | 18% |
| Gearboxes | 8708 | 28% | 18% |
| Brakes | 8708 | 28% | 18% |
| Tyres (new) | 4011 | 28% | 18% |
| Bike spare parts | 8714 | 28% | 18% |
| Batteries (non-EV) | 8507 | 18% | 18% |
| EV batteries | 8507 | 5% | 5% |
Who Can Claim ITC on Vehicle Purchases?
Under GST Section 17(5), ITC on motor vehicles is generally blocked for personal use. However:
ITC CAN be claimed if the vehicle is:
- Used for transporting passengers commercially (taxi, auto-rickshaw, bus)
- Used for transporting goods (goods carrier vehicles)
- Used for driver training
- A goods transport vehicle purchased for commercial resale/leasing
- An EV purchased for delivery business
ITC CANNOT be claimed if:
- The vehicle is for personal use
- The vehicle is given to an employee for personal and office use
How Do You Calculate GST on a Vehicle?
CGST = Ex-showroom Price × (GST Rate/2) / 100 SGST = Ex-showroom Price × (GST Rate/2) / 100 Total GST = CGST + SGST On-road price = Ex-showroom + GST + Registration + Insurance + Others
CGST (9%): ₹9,50,000 × 9% = ₹85,500 SGST (9%): ₹9,50,000 × 9% = ₹85,500 Total GST: ₹1,71,000 On-road price (approximate, before reg/insurance): ₹11,21,000
GST on Cars and Bikes — Frequently Asked Questions
Will car prices actually drop after GST 2.0?
Many manufacturers have already adjusted ex-showroom prices for select models after the September 2025 reforms; actual consumer benefit depends on company pricing decisions and dealer margins.
Is compensation cess fully abolished on vehicles?
The compensation cess is being phased out by March 2026. The new GST rate structure absorbs the cess into the final rate for most vehicles, though some components may still appear during the transition.
Does 40% GST apply to the Royal Enfield Classic 350?
No — the Royal Enfield Classic 350 has an engine capacity of exactly 346cc, which is below the 350cc threshold, so it falls in the 18% slab. The Meteor 350 (349cc) is also under 18%.
What GST applies to used car sales?
Used cars sold by registered dealers attract GST only on the margin (selling price minus purchase price) under the margin scheme. Individual-to-individual sales attract no GST.
Can businesses claim ITC on a company car?
Generally no — ITC on motor vehicles is blocked under Section 17(5) for personal use, but it can be claimed for vehicles used in commercial passenger transport, goods transport, or driver training.
External References
CBIC HSN Chapter 87 — Vehicle Classifications — official vehicle GST codes
GST Portal — official rate notifications
Conclusion
GST 2.0 has fundamentally reshaped vehicle taxation in India:
| Winner | Loser |
|---|---|
| Small car buyers (28% → 18%) | Luxury car buyers (50% → 40%, but still high) |
| Commuter bike buyers <350cc (28% → 18%) | Premium bike buyers >350cc (31% → 40%) |
| EV buyers (5% unchanged — lowest rate) | — |
| Commercial vehicle operators (28% → 18%) | — |
| Tractor/agriculture sector (28% → 18%) | — |
For most Indian vehicle buyers, this is unambiguously good news. Before finalising your purchase, use gstcalculator.me to compute your exact GST liability at the new rates.
Related: GST 2.0 Reforms India 2025 · New GST Rate Slab List 2025–26 · HSN Code List India 2025 · E-Way Bill GST India 2025
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