The Goods and Services Tax (GST Council), in its 56th meeting on September 3, announced sweeping changes to the automobile tax structure, offering relief to small car buyers while tightening levies on hybrids, luxury vehicles, and big motorcycles. The revised rates will come into effect from September 22, 2025.
Relief for Small Cars
Small cars — long considered the backbone of India’s auto market — received the biggest benefit. Petrol, CNG, and LPG cars with engines up to 1200cc and length under four metres will now attract 18% GST, down from 28%. Diesel cars with engines up to 1500cc in the same length category also move to the 18% slab.
This 10% tax cut is expected to reduce ex-showroom prices of popular models like Maruti Swift, Hyundai i10, Tata Punch, Brezza, and Venue by 5–7%. Automakers have consistently pushed for this relief, citing affordability as crucial for sustaining demand in India’s price-sensitive market.
Hybrids Face Higher Taxes
Contrary to expectations, hybrids did not receive incentives. Smaller hybrids that qualify as small cars will benefit from the 18% slab, but larger petrol-electric and diesel-electric hybrids have been pushed into the 40% GST bracket (up from 28%).
Models such as Toyota Innova Hycross Hybrid and Honda City e:HEV are likely to get costlier. The decision signals the government’s clear preference for direct EV adoption, with electric vehicles continuing to attract just 5% GST.
Premium Cars & High-End Two-Wheelers
Luxury vehicles remain in the highest tax bracket, with cars outside the small car definition taxed at 40%. Motorcycles above 350cc also shift from 28% to 40% GST, while two-wheelers up to 350cc, three-wheelers, and ambulances will now face the lower 18% slab.
Policy Signal
The GST Council’s decision reflects a dual approach — providing relief for mass-market vehicles to boost affordability and demand, while tightening levies on hybrids, premium models, and high-end bikes to safeguard revenues and reinforce the push towards electric mobility.
Automakers with strong small-car lineups are expected to gain from rising volumes, while those banking on hybrids and luxury segments may need to reassess pricing and product strategies.
