In a major tax reform unveiled by the GST Council, effective September 22, 2025, cars with engine capacity over 1500 cc (and mid-size/large vehicles) will now attract a flat 40 % GST, replacing the previous GST plus hefty compensation cess that pushed total tax to 45–50 %.
What’s Changing?
- Luxury and high-capacity cars exceeding 1500 cc—or measuring over 4000 mm in length—now fall under the 40 % GST slab, with no additional compensation cess.
- Popular SUVs such as the Hyundai Creta, Kia Seltos, Tata Harrier, Mahindra XUV700, Toyota Fortuner, and luxury sedans will now all be taxed uniformly at 40 %, simplifying the tax structure
Why It Matters
Simplified Taxation
Previously, these vehicles were taxed at 28 % GST plus up to 22 % compensation cess, amounting to a steep 45–50 % total tax. Now, the rollback of cess and a uniform GST of 40% may actually reduce overall tax incidence.
Real-World Pricing Impacts
For example, a car priced at ₹40 lakh before tax would cost approximately ₹59.2 lakh earlier under combined GST and cess. Under the new regime, the same car will come at approximately ₹56 lakh—resulting in savings of over ₹3 lakh.Business Standard
Boost to Auto Industry & Consumers
The revised tax structure could benefit automakers by stimulating demand in the premium vehicle segment while still offering better pricing.
Quick Summary Table
| Segment | Old Tax (GST + Cess) | New Tax (GST Only) | Impact |
|---|---|---|---|
| Cars >1500 cc or >4 m in length | 45–50 % | 40 % | Overall tax decrease; possible price drop |
| SUVs, MUVs, MPVs (premium) | 45–50 % with cess | 40 % | Simplified structure; savings passed to buyers |
