Revised GST Rates and Their Impact on Car Buyers

Recently, the government under GST 2.0 has overhauled the 28% taxation structure applicable to four-wheelers. This resulted in a reduction in car prices across categories. Effective September 22, 2025, small cars with 1200 cc petrol engines, 1500 cc diesel engines, and a size of under four metres will attract 18% GST. Luxury vehicles and large SUVs were put under the GST slab of 40%.

Not only that, earlier four-wheelers used to attract a compensation cess ranging from 1% to 22%. In this new reform, this has been reduced as well.

Here is a tabular presentation of the changes:

Vehicle Type	Old Tax Rates (GST + Cess)	New GST Rates
Small Cars under four metres up to 1200 cc petrol engine	29% (28% GST + 1% cess)	18.00%
Small Cars under four metres up to 1500 cc diesel engine	31% (28% GST + 3% cess)	18.00%
Luxury Cars and SUVs over four metres and engine displacement size over 1500 cc	Up to 50% (28% GST + up to 22% cess)	40.00%
Luxury Cars and SUVs over four metres and engine displacement size over 1500 cc	Up to 50% (28% GST + up to 22% cess)	40.00%
Electric Vehicles	5.00%	5.00%
Auto Parts	Varies between 18% and 28%	18.00%
Two-Wheelers up to 350 cc	28.00%	18.00%

Change in Car Prices of the Major Brands
Following the GST rate cut, car manufacturers have decided to pass on the full benefits to customers. Here is how much you can save on different car models based on the new rates.

car insurance price is directly related to the ex-showroom price, which is inclusive of GST. This means the GST rate cut will also make insurance cheaper. However, it is important to note that the own damage component of car insurance will become more affordable, while the third-party car insurance premium will remain unchanged. The reason is that the premium for third-party liability cover is decided by the Insurance Regulatory and Development Authority of India (IRDAI) and is based on engine displacement size, regardless of the make and model you own.

Beyond pricing, other factors that impact car installation premium are:

Geographical Location

If you live in a metropolitan city with dense traffic, frequent accidents, and high car theft cases, you may have to pay a higher premium due to the risk involved. Remember that insurers maintain detailed up to date regional data on accident statistics, claim ratios, and theft reports, which they use to calculate the premium.

Type of Fuel Used

The fuel type of your car influences both repair costs and risks. Diesel cars generally attract higher premiums compared to petrol cars since their engines are more expensive to repair. CNG and LPG vehicles, if fitted externally, may also increase the premium because of additional fire and explosion risks.

Add-On Covers

Add-on covers in car insurance are optional benefits you can purchase along with your comprehensive policy for extra protection. Available on additional premium, depending upon your needs, you can pick from zero depreciation, engine protection, roadside assistance, and/or return-to-invoice cover.

Safety Devices

Cars fitted with advanced braking systems, airbags, and GPS-enabled anti-theft devices are less likely to suffer severe damage or theft. Insurance companies recognise this lower risk and usually provide discounts on premiums. However, discount benefits are available only if the device is recognised by the Automotive Research Association of India (ARAI).

Voluntary Deductible

A voluntary deductible is the part of the claim amount you agree to pay from your own pocket before the insurer contributes. If you opt for a higher deductible, your insurer’s liability decreases, leading to lower premiums. However, this also means you bear more expenses during an actual claim.