Revised GST Rates and Their Impact on Car Buyers

The Goods and Services Tax (GST) rates in India have undergone significant changes, affecting various industries, including the automotive sector. The revised GST rates have a substantial impact on car buyers, influencing their purchasing decisions and the overall cost of vehicle ownership.

Current GST Rates for Cars

The current GST rates for cars in India are as follows:

  • 5% GST for electric vehicles
  • 18% GST for vehicles with engine capacity up to 1200cc and length up to 4000mm
  • 20% GST for vehicles with engine capacity between 1200cc and 1500cc, and length up to 4000mm
  • 22% GST for vehicles with engine capacity above 1500cc and length above 4000mm
  • 50% of the total tax amount (cess) for luxury vehicles, in addition to the GST rate

Impact on Car Buyers

The revised GST rates have both positive and negative effects on car buyers:

  1. Increased Cost: The higher GST rates for vehicles with larger engine capacities and lengths have increased the cost of these cars, making them more expensive for buyers.
  2. Decreased Cost: The lower GST rate for electric vehicles has made them more affordable, encouraging buyers to opt for eco-friendly options.
  3. Cess on Luxury Vehicles: The additional cess on luxury vehicles has further increased their cost, making them less appealing to buyers who are looking for premium vehicles.
  4. Effect on Sales: The revised GST rates have influenced car sales, with some segments experiencing a decline due to the increased costs, while others, like electric vehicles, have seen a surge in demand.

Factors Affecting Car Buyers’ Decisions

Several factors influence car buyers’ decisions in the face of revised GST rates:

  • Budget: The increased cost of vehicles due to higher GST rates may force buyers to reconsider their budget and opt for more affordable options.
  • Fuel Efficiency: Buyers may prioritize fuel-efficient vehicles to minimize their overall cost of ownership.
  • Environmental Concerns: The lower GST rate for electric vehicles may attract buyers who are environmentally conscious and willing to invest in eco-friendly options.

Conclusion

The revised GST rates have a significant impact on car buyers in India, affecting their purchasing decisions and the overall cost of vehicle ownership. While the increased costs may deter some buyers, the lower GST rate for electric vehicles presents an opportunity for the growth of the eco-friendly segment. As the Indian automotive industry continues to evolve, car buyers must carefully consider their options and prioritize their needs in light of the revised GST rates.

by | Sep 30, 2025 | Insurance, Tata AIA

The Indian government has announced significant reforms to the Goods and Services Tax (GST) regime, reducing the four-tier structure to two core rates of 5% for essentials and 18% for other goods. A new ‘de-merit’ slab of 40% has been introduced for sin products and luxury items. The reforms have a notable impact on the automotive sector, particularly on four-wheelers.

Effective September 22, 2025, small cars with 1200 cc petrol engines, 1500 cc diesel engines, and a size of under four meters will attract 18% GST, resulting in a reduction in car prices across categories. Luxury vehicles and large SUVs will be taxed at 40% under the GST slab. The compensation cess, which previously ranged from 1% to 22%, has been reduced.

The revised GST rates will lead to price reductions in cars from various manufacturers, including Tata, Hyundai, Mahindra, Toyota, Kia, Renault, Skoda, and MG. The price cuts range from ₹55,095 to ₹4,49,000, depending on the model and brand.

The GST rate cut will also make car insurance more affordable, as the insurance price is directly related to the ex-showroom price, which includes GST. However, the third-party car insurance premium will remain unchanged, as it is decided by the Insurance Regulatory and Development Authority of India (IRDAI) and based on engine displacement size.

Other factors that impact car insurance premiums include geographical location, type of fuel used, add-on covers, safety devices, and voluntary deductibles. Cars fitted with advanced safety devices, such as airbags and GPS-enabled anti-theft devices, may be eligible for discounts on premiums.

In conclusion, the GST overhaul has simplified taxation on cars, reducing prices and making them more affordable. The rate cut is expected to encourage car owners to invest in comprehensive car insurance, protecting their vehicles against various incidents. With the removal of cess, price reductions are tangible across segments, making it an ideal time for car buyers to make a purchase.