Goods and Services Tax (GST) currently applies to most goods and services in India including motor vehicles. GST on cars in India is applicable across multiple slab rates of 5%, 12%, 18% and 28%. The most relevant GST rate on cars is 28% that applies to motor vehicles including those for personal as well as commercial use. The lowest GST rate on vehicles of 5% applies to carriages for use by disabled people and related accessories. However, GST is not the only tax applicable to motor vehicle sales, as a compensation cess of up to 22% may be levied on cars in addition to the 28% GST that is applicable.
What is GST on cars?
Cars are covered in the scope of supply as defined by the GST law without any exemption. However, vehicles used by physically disabled persons are exempted from GST. Furthermore, the purchase of used cars from unregistered dealers is out of the scope of taxation.
GST has simplified taxation on cars in India. If you’re buying a small petrol car under 1200cc, you’re looking at a 28% GST with just a 1% extra charge, or cess. Larger, luxury cars get a higher rate, making GST a key player in shaping car prices. This streamlined tax introduced by the GST law unlike earlier tax regime, helps keep costs predictable, often giving buyers a break compared to pre-GST days.
Car Category | Engine Capacity & Length | GST Rate | Compensation Cess | Total Tax Rate |
| Small Petrol Cars | Up to 1200 cc, less than 4m length | 28% | 1% | 29% |
| Small Diesel Cars | Up to 1500 cc, less than 4m length | 28% | 3% | 31% |
| Mid-sized Cars | Above 1200 cc (petrol) or 1500 cc (diesel) | 28% | 15% | 43% |
| Luxury Cars | Above 1500 cc | 28% | 20% | 48% |
| SUVs | Above 1500 cc, more than 4m length | 28% | 22% | 50% |
| Electric Vehicles | All capacities | 5% | 0% | 5% |
Pre-GST vs Post-GST Car Price Comparison in India
Car Category | Pre-GST Tax Rate (Approx.) | Post-GST Tax Rate | Price Impact Post-GST |
| Small Petrol Cars | ~31-33% | 29% | Minor price decrease |
| Small Diesel Cars | ~33-35% | 31% | Slight decrease |
| Mid-sized Cars | ~40-45% | 43% | Moderate increase |
| Luxury Cars | ~50-55% | 48% | Notable price drop |
| SUVs | ~50-55% | 50% | Mostly stable |
| Electric Vehicles | ~20-30% | 5% | Significant decrease |
Exemptions of GST Rates on Car
Indian government offers special GST concessions on four types of vehicles to promote affordability, accessibility, and sustainability.
- Electric Vehicles (EVs) – In this section only 5% GST is applicable. The intention is to promote green mobility.
- Ambulances – 12% GST, reducing costs for hospitals
- Used Cars – GST applies only on the profit margin, not the full price. No tax applies if sold at a loss, making pre-owned cars more cost-effective.
- Vehicles for Persons with Disabilities – GST discounts lower prices for specially designed vehicles, ensuring better mobility and independence.
Input tax credit on motor vehicles
Section 17(5) talks about blocked credit and thereby disallows ITC on certain motor vehicles. ITC is not available on motor vehicles used for transport of persons with a seating capacity of less than or equal to 13 persons including the driver. ITC is available when vehicles are used for below purposes:
Lets elaborate on the availability of ITC on cars:
- Employer giving the car to the employee for business use- As per section 17(5), clause (a) and clause (aa), ITC can be claimed on motor vehicles used for business purposes. If the car is given to the employee for personal use, then ITC cannot be claimed.
- ITC on demo cars (at showrooms)- The general rule is that the ITC of motor vehicles with a seating capacity less than 13 persons are blocked as per section 17(5). But, in the case of car dealers, the demo car is not purchased with an intention for retail sale. So, it can be treated as a capital asset, and full ITC can be claimed.
- ITC on renting of cars for business or employee transport- As per section 16(1), all registered persons can claim ITC on goods or services used in the course or furtherance of business. Also, ITC is available on leasing/renting of motor vehicles with seating capacity more than 13 persons as per amended section 17(5). Thus, in this case, an employer can claim ITC on GST charged by the service provider to rent motor vehicles only if the approved seating capacity is greater than 13 persons.
- Transport business purchasing cars for passenger transport service or cabs- If a person is in the transportation of passengers, he can claim ITC on such vehicle purchase.
FAQs
Q1. What is the GST on second-hand cars?
- Small used cars (Petrol ≤1200cc, Diesel ≤1500cc): 12% GST
- Larger used cars: 18% GST
- GST applies only on the dealer’s profit margin, not the full sale price.
Q2. What is the GST rate for SUVs?
SUVs attract 28% GST + cess, which can push total tax up to 50%, depending on engine size and length.
Q3. Is there cess on cars?
Yes, 1% to 22% depending on vehicle size. EVs have no cess.
Q4. Are there extra taxes on cars?
Yes, road tax and registration fees, which vary by state and car price.
Q5. How much is GST on cars?
Most new cars have a 28% GST, but electric vehicles (EVs) get a lower 5% GST to promote green transport.
Q6. How is GST calculated on cars?
Formula: Ex-showroom price × (GST % + Cess %).
Example: A INR 6,00,000 car at 28% GST + 3% cess = INR 1,86,000 tax.
