GST on Cars in India: New, Used and Electric

GST on a car in India now comes down to one question: is it a small car or not? Since the GST 2.0 reform took effect on 22 September 2025, small petrol and diesel cars attract 18%, every other passenger car attracts 40%, and electric cars stay at 5%. The compensation cess that used to sit on top of car prices is gone. This guide explains the GST rate on cars for new, used, electric and hybrid vehicles, works through the numbers in rupees, and clears up two common confusions: the "above ₹10 lakh" charge, which is income tax rather than GST, and input tax credit for businesses.

New GST on cars after GST 2.0

Before the reform, cars were in the old 28% slab, and almost all of them also paid compensation cess. The cess was what separated a hatchback from an SUV: it ran from a small top-up on entry-level petrol cars to a heavy one on large SUVs, so the combined tax on a car could be anywhere from about 29% to about 50%.

The 56th GST Council meeting replaced that layered structure with two flat rates. As our guide to the GST rate slabs explains, most former 28% goods moved to 18%, and the luxury and de-merit residue moved to a new 40% rate with the cess folded in. Cars were split across both:

The rate is set by the GST Council's rate notifications for the vehicle's tariff heading, and the manufacturer bills the dealer at that rate. As a buyer you do not choose the rate; you see it on the dealer's tax invoice. Exact cut-offs for borderline models are worth confirming against the current notification on cbic-gst.gov.in.

How engine size and length decide the rate

Two conditions must both be met for the 18% rate. The car must have an engine within the limit for its fuel — up to 1,200 cc for petrol, CNG or LPG, up to 1,500 cc for diesel — and it must be no longer than 4,000 mm. Fail either test and the car is at 40%.

• A 1,197 cc petrol hatchback, 3.9 metres long: 18%.
• A 1,493 cc diesel compact SUV built to just under 4 metres: 18%.
• A 1,197 cc petrol sedan stretched to 4.3 metres: 40%, because of length.
• A 1,482 cc petrol compact SUV under 4 metres: 40%, because a petrol engine above 1,200 cc fails the engine test.

This is why so many Indian cars are built to measure 3,995 mm: the 4-metre line was already the cut-off for the lower cess, and it now decides between 18% and 40%. Price, brand and whether the car is called an SUV do not matter. A ₹12 lakh sub-4-metre car can pay 18% while a ₹10 lakh sedan pays 40%.

GST on electric and hybrid cars

GST on electric cars is 5%, and the reform left it there. The rate applies to the battery electric vehicle as a whole, whatever its length, power or price, so a large electric SUV and a small electric hatchback are taxed alike. Accessories, home chargers and charging sessions are separate supplies with their own classification; do not assume the 5% vehicle rate carries over to them.

Hybrids — mild, strong or plug-in — are not electric vehicles for this purpose. They have a petrol or diesel engine, so they take the same size test: within the small-car limits they attract 18%, otherwise 40%. The earlier structure gave some hybrids a lower cess; that distinction disappeared along with the cess.

What the GST adds to a car price

GST is charged on the transaction value of the car, which in practice is the ex-showroom price before tax. Registration charges and road tax are state levies, not GST, and are added on top to reach the on-road price. Motor insurance is a separate service, taxed at the rate that applies to general insurance. Here is how the vehicle GST works on three cars, each with a pre-tax value set for illustration:

On a dealer within your state the GST is split equally into CGST and SGST — ₹54,000 each on the hatchback. Our guide on how to calculate GST covers working back from a GST-inclusive price, which is how most car prices are quoted: divide by 1.18 or 1.40 to get the pre-tax value.

Cars above ₹10 lakh: that is TCS, not GST

Searches for GST on cars above ₹10 lakh usually come from a line on the invoice labelled TCS. It is not GST and has nothing to do with the GST rate. Under the income tax law, a seller of a motor vehicle priced above ₹10 lakh collects tax at source from the buyer, currently at 1% of the sale price. On the ₹21 lakh SUV above, that is about ₹21,000.

TCS is an advance of the buyer's own income tax, not a cost. The dealer deposits it against your PAN, it appears in your Form 26AS and annual information statement, and you claim it in your income tax return against tax payable, or as a refund. Give the dealer your correct PAN so the credit lands in the right place. It is also unrelated to the TCS that e-commerce operators collect under GST, which is explained in our GST TDS and TCS guide.

GST on used cars and the margin scheme

Used car GST rates depend first on who is selling.

• A private individual selling their own car to another individual pays no GST. The sale is not made in the course of a business, so it is not a taxable supply.
• A registered used-car dealer charges GST, but usually not on the full price. Under the valuation rules for second-hand goods, a dealer who has not claimed input tax credit on the car can pay GST only on its margin — the selling price minus the purchase price. If the margin is nil or negative, no GST is payable.
• A business selling a car it used (a company disposing of an old staff car) values the supply under the same rules. If it claimed depreciation under income tax, the margin is the selling price minus the depreciated value, and again a negative margin means no GST.

Example: a dealer buys a hatchback from an individual for ₹4,00,000 and sells it for ₹4,50,000. GST is charged on the ₹50,000 margin, not on ₹4,50,000. At an 18% rate, for instance, that is ₹9,000 rather than ₹81,000.

Used vehicles have historically carried their own concessional rate notification for the margin, and that mapping was revised alongside the GST 2.0 rates. Because the rate on the margin is set separately from new-car rates, and can differ by vehicle size, a dealer should confirm it against the current notification rather than assume the new-car rate applies. For a buyer the practical point is simpler: on a dealer's bill, the GST should be a small amount relative to the price, because it is only on the margin.

Can a business claim ITC on a car?

For most businesses, no. Section 17(5)(a) of the CGST Act blocks input tax credit on motor vehicles for transporting persons with an approved seating capacity of 13 or fewer, including the driver. A car bought for a director, a sales team or general office use is blocked, even though the business is fully taxable. The block extends to the car's insurance, servicing and repairs.

Credit is available only where the car is used for further supply of vehicles (a dealer's stock), for transporting passengers (a taxi operator), or for driving training. Goods vehicles are outside the block entirely. The details and worked examples are in our guide to ITC on motor vehicles, and the full list of blocked items is in blocked credits under Section 17(5). Where credit is blocked, the GST becomes part of the car's cost and is depreciated with it. At 40%, that is a large number, and it is one reason the 18% cut-off matters to fleet buyers too.

Checking the dealer's bill

A car invoice should show the dealer's GSTIN, the tariff heading of the vehicle, the taxable value, and the GST rate and amount split into CGST and SGST (or IGST for an inter-state sale). Check that the rate matches the car — 18%, 40% or 5% — and that no compensation cess line appears on a car sold after 22 September 2025. For a used car, the invoice should make clear that tax is on the margin.

It is also worth confirming that the GSTIN on the invoice is active and belongs to the dealer named on it, especially with smaller used-car dealers. You can look it up free on our GSTIN verification page, and our guide to checking whether GST on a bill is real lists the other signs to look for.

Frequently asked questions