Recently, the Indian government has been discussing reducing GST rates, which could lead to a significant reduction in car prices. For example, the Toyota Fortuner could be cheaper by around ₹4-5 lakh, while the tax on luxury cars like the Mercedes E-Class could be reduced by around 10%. Even small cars like the WagonR could be cheaper by around 12% if the proposed GST rules are implemented.
How Car GST Works in India
Currently, cars in India are taxed at 28% GST + additional CESS, which depends on 3 factors.
- Car size (less than/more than 4 meters in length)
- Engine capacity
- Fuel type (petrol/diesel)
This makes cars much more expensive than their ex-factory price.
Current GST Tax Categories on Cars
1. Small Cars (Example: WagonR, Celerio, Espresso)
- Length: under 4m (< 4m)
- Engine: under 1.2L (petrol)
- Tax: 28% GST + 1% CESS = 29%
- Example: If a car costs ₹5 lakh ex-factory, you pay about ₹1.5 lakh extra in taxes.
2. Sub-4m Diesel Cars (Example: Hyundai Venue Diesel)
- Length: under 4m
- Engine : Diesel engine
- Tax: 28% GST + 3% CESS = 31%
- Example: A car worth ₹10 lakh ex-factory will cost ₹3.1 lakh more in taxes.
3. Mid-Size Cars (Example: Hyundai Creta)
- Length: over 4m
- Engine: under 1.5L
- Tax: 28% GST + 15% CESS = 43%
- Example of payment on taxes : On a ₹15 lakh car, you pay ₹6.5 lakh tax.
4. Luxury Sedans (Example: Toyota Camry, Mercedes E-Class, BMW 5 Series)
- Length: over 4m
- Engine: above 1.5L (sedan)
- Tax: 28% GST + 20% CESS = 48%
- Example: On a ₹50 lakh car, you pay ₹14 lakh tax.
5. Large SUVs (Example: Toyota Fortuner, Land Rover Defender)
- Length: over 4m ( > 4 meter)
- Engine: above 1.5L
- Ground clearance: above 170mm
- Tax: 28% GST + 22% CESS = 50%
- Example: On a ₹45 lakh Fortuner, you pay ₹15 lakh tax.
Currently, GST on cars in India is much higher than in other countries. The tax rate depends mainly on three factors – the length of the car, the engine size and the type of fuel. Small hatchback cars (less than 4 metres and with an engine capacity of less than 1.2 litres) like the WagonR attract 28% GST plus 1% cess, making a total of 29%. Compact diesel cars under 4 metres in length, such as the Hyundai Venue Diesel, attract a tax of 31%. Mid-size cars like the Hyundai Creta attract a tax of around 43%, while premium sedans like the Toyota Camry or Mercedes E-Class attract a tax of 48%. The highest rate, 50%, applies to SUVs like the Toyota Fortuner, which have larger engines and higher ground clearance.
New GST Reform
The government is now planning to simplify the tax slabs. Instead of 5%, 12%, 18% and 28%, it may soon bring in just two slabs, 5% and 18%. So cars, which are now at 28%, could come down to 18%. At the same time, a new “sin tax” of 40% could be imposed on luxury and high-end vehicles, as buying a car is considered a non-essential purchase. This means that cheap cars could become cheaper, but luxury cars could continue to be heavily taxed.
Expected Price Reductions (If New Rates Apply)
The government will implement the new GST rates (Next Generation GST Reform) before September 22. If GST is reduced, here’s how much you can save.
If the new structure is implemented, the price of an entry-level hatchback like the WagonR could come down by around ₹50,000, while a compact SUV like the Hyundai Venue could be cheaper by 10-12%. Mid-size cars like the Honda City or Hyundai Creta could see a 2-3% reduction. Premium models like the BMW 5 Series or Mercedes E-Class could see a discount of up to ₹4-5 lakh, while high-end SUVs like the Toyota Fortuner could see a saving of up to ₹3 lakh. Ultra-luxury cars like the Rolls-Royce Phantom could also see a tax saving of over ₹40 lakh.
Note : This is only an expected and approximate calculation.
WagonR – Starting at ₹5.78L → ₹5.28L (Save ₹50K)
Tax: GST 18%, Cess: 0% = Total 18%
Price Dropdown: 10%
New Price: 5.28 Lakh
Save Money: 50k
Hyundai Venue Diesel – Starting at ₹10.8L → Save up to ₹1.2L
Tax: GST 18%, Cess: 0% = Total 18%
Ex-showroom Savings: 11%
On-road Savings: 12-13%
Final New Price: 9.28
Save Money: 1.2
Hyundai Creta – Save around ₹25K
Tax: GST 40%, Cess: 0% = Total 40%
Final Price: 11.10 Lakh
Final New Price: 10.80 lakh
Save: 25k (2.5%)
Honda City – Save about ₹60 thousand
Current price: 12.38 lakh
Tax: GST 40%, Cess: 0% = Total 40%
New price: 12.10 lakh
Savings: 2.5%
BMW 5 Series – Save about ₹4 lakh
Current price: 74.40 lakh
Tax: GST 40%, Cess: 0% = Total 40%
New price: 70 lakh
Savings: 6%
Mercedes E-Class – Save about ₹4.5 lakh
Current price: 78.50 lakh
Tax: GST 40%, Cess: 0% = Total 40%
New price: 74 lakh
Savings: 6%
Toyota Fortuner – Save about ₹3 lakh
Current price: 44.51 lakh
Tax: GST 40%, Cess: 0% = Total 40%
New price: 41.51 lakh
Savings: 7%
Mahindra Scorpio – Save around ₹90,000
Current price: 13.99 lakh
Tax: GST 40%, Cess: 0% = Total 40%
New price: 13.06 lakh
Savings: 6.8%
Land Rover Defender – Save around ₹8 lakh
Tax: GST 40%, Cess: 0% = Total 40%
Rolls-Royce Phantom – Save up to ₹45 lakh
Tax: GST 40%, Cess: 0% = Total 40%
Impact on the Car Market
However, there is still confusion in the market. Many buyers are delaying their purchases, waiting for official clarification on the GST changes. Car manufacturers and dealerships are urging the government to finalise the new framework before the Navratri festive season, as sales have been sluggish this year. Maruti, Tata and Mahindra are likely to benefit the most as most of their cars fall in the small and mid-size segment, where they will see a big positive impact from the tax cut. If prices come down by even 10%, consumer demand could pick up sharply.
Why This Matters
The Indian car industry is struggling with a low growth of 1-2% despite a growing population, with exports also under pressure due to new international tariffs. If the GST Cuts are implemented, small and mid-size cars could become significantly cheaper, with manufacturers like Maruti, Tata and Mahindra benefiting the most as their cars mostly fall in the sub-4mm range, which could make them more attractive to buyers. Luxury cars could also see some relief in prices, though they will still be heavily taxed. The next few weeks will be crucial as the government announces its final decision, which could reshape India’s car market.
But until the government officially announces it, the market remains confused, and car sales are sluggish.
