Despite 40% GST, Big Cars And SUVs May Become Cheaper: NDTV Explains

Union Finance Minister Nirmala Sitharaman announced the new tax infrastructure yesterday, with a slew of changes to the taxation for the automotive industry. The GST slab for the luxury cars is now shifted to 40 per cent, from the 28 per cent bracket they enjoyed earlier. For the layman, it might sound like an increase in the effective price of big and luxury cars. However, with the GST rationalisation, the council has abolished the cess that was charged earlier, making models from luxury carmakers like Mercedes-Benz, BMW, and more slightly affordable. The new GST brackets will come into effect from September 22. Similarly, the slab also caters to SUVs and cars that do not comply with the definition of small cars.

In the earlier slabs, ICE cars were levied a GST rate of up to 28 per cent. Additionally, the cess rate hiked the on-road price by up to 17-22 per cent, effectively. Resultantly, the overall tax incidence ranging from 45-50 per cent. With the new proposed GST regime, these premium cars will be subjected to just a 40 per cent GST rate, and no cess. This will make the luxury cars a tad bit cheaper than earlier.

Furthermore, the commercial vehicles like buses, trucks, and ambulances will now have a uniform GST of 18 per cent, which is down from 28 per cent. Similarly, the auto parts will have a GST of 18 per cent irrespective of their HS codes. Falling in the same bracket will be three-wheelers with 18 per cent of GST.

Also Read: Explained: New GST Slabs For Cars, Motorcycles And How It Impacts You

Speaking on the new GST regimes, Santosh Iyer, MD & CEO, Mercedes-Benz India, quoted, "Government listened to the automotive industry's long-standing wish list of rationalising GST rates. This GST revision is a step in the right direction, is progressive and will induce the much-needed impetus by boosting consumption and bringing momentum to the automotive industry, which essentially remains the pulse of the Indian economy. We are thankful to the Government for keeping the GST rate for BEVs unchanged, ensuring faster transition to a decarbonized future."

Mr. Balbir Singh Dhillon, Head of Audi India, said, "We view the GST simplification as a step in the right direction – one that supports industry growth and helps us expand the market. It also enhances transparency and aligns with India's economic vision. The GST Council's move to retain a low rate for EVs is a welcome step; this brings much-needed clarity and makes our portfolio more accessible to our discerning buyers. Such reforms help stabilize the business environment and help devise strategies that benefit all stakeholders in the best possible manner."

The changes in the tax structure with two slabs also mean bringing uniformity, removing the cess that was previously levied on vehicles. All of these revisions in taxation will be implemented from 22 September 2025, right before the festive season, when the auto sector anticipates greater sales. It will also bring relief for the vehicle buyers, giving a boost to the rather sluggish sales in the industry in the last quarter.