GST on Motor Vehicles in India —
18% or 40%?
The post-GST 2.0 rate on cars, SUVs, two-wheelers, EVs and used vehicles — plus when a business can claim Input Tax Credit and how the used-car margin scheme works.
After the GST 2.0 reform (effective 22 September 2025) the compensation cess on vehicles was abolished and autos now sit in two slabs. Small cars, two-wheelers up to 350cc, three-wheelers and commercial vehicles are taxed at 18%; large cars, SUVs and bikes above 350cc at 40%. Electric vehicles remain at 5%. Used cars sold by a registered dealer attract 18% on the margin. ITC on cars stays blocked under Section 17(5) for most businesses.
GST Rate on Motor Vehicles — Decision Table
The GST rate for every common vehicle category after GST 2.0. The old 28% + 1%–22% compensation cess structure no longer applies — the cess was scrapped from 22 September 2025.
| Vehicle category | GST Rate | Cess | Notes |
|---|---|---|---|
| Small petrol car (≤1200cc, ≤4,000mm) | 18% | Nil | Down from ~29% earlier |
| Small diesel car (≤1500cc, ≤4,000mm) | 18% | Nil | Down from ~31% earlier |
| Large car / SUV (>1200cc petrol, >1500cc diesel or >4,000mm) | 40% | Nil | Single 40% demerit rate |
| Electric vehicle (all categories) | 5% | Nil | Concessional rate retained |
| Two-wheeler up to 350cc | 18% | Nil | Down from 28% |
| Two-wheeler above 350cc | 40% | Nil | Premium motorcycle slab |
| Three-wheeler | 18% | Nil | Down from 28% |
| Bus / truck / ambulance | 18% | Nil | Commercial vehicles at 18% |
| Used car — registered dealer (margin scheme) | 18% | Nil | 18% on positive margin only |
| Used car — individual to individual | No GST | — | Unregistered sale, outside GST |
Rates reflect the GST 2.0 two-slab structure (Chapter 87 HSN) effective 22 September 2025. Confirm exact classification on the official GST portal before invoicing.
18% or 40% — Which Car Slab Applies?
For petrol and diesel cars, one set of physical limits decides the slab: engine size and length. Stay within the small-car limits and you pay 18%; cross any of them and the whole vehicle moves to 40%.
Small cars, bikes & commercial
- Petrol ≤1200cc & length ≤4,000mm
- Diesel ≤1500cc & length ≤4,000mm
- Two-wheelers up to 350cc
- Three-wheelers, buses, trucks, ambulances
- No compensation cess anymore
Large cars, SUVs & premium bikes
- Engine above the small-car limits
- Length above 4,000mm
- Most full-size SUVs
- Motorcycles above 350cc
- Single 40% demerit rate — no cess
Earlier a large SUV could bear 28% GST plus up to 22% cess (≈50% effective). From 22 September 2025 the cess is gone and the ceiling is a flat 40%, while small cars dropped from roughly 29–31% to 18% — a real price cut on mass-market models.
Not sure which slab your model falls into?
Get My GST Rate →ITC on Motor Vehicles — Blocked u/s 17(5)
Input Tax Credit on motor vehicles for carrying passengers (seating up to 13, including the driver) is blocked under Section 17(5)(a) of the CGST Act. A company buying a car for directors or staff commute cannot set the GST off against output tax. Credit is allowed only in defined exceptions.
| Situation | ITC? | Reason |
|---|---|---|
| Company car for directors / employees | No | Blocked u/s 17(5)(a) |
| Car for sales-team commute | No | Blocked u/s 17(5)(a) |
| Truck / van for transport of goods | Yes | Exception — goods transport |
| Cab operator buying cars for taxi service | Yes | Exception — passenger transport supply |
| Driving school car for training | Yes | Exception — imparting driving training |
| Dealer buying cars as stock-in-trade | Yes | Exception — further supply of vehicles |
Wrongly claimed ITC on a blocked car invites reversal with interest and penalty. See our guide to blocked credit under GST.
How GST Adds Up on a Car
18% Small car — ex-showroom base ₹6,00,000
40% Large SUV — ex-showroom base ₹20,00,000
Road tax, registration and insurance are separate levies outside GST and are added on top of the figures above by the state RTO and insurer.
Buying vehicles for your business? Check your ITC position before you claim.
Talk to a GST Expert →GST on Used & Second-Hand Cars
When a GST-registered dealer sells a used vehicle without claiming ITC on it, GST applies at 18% on the margin — the difference between selling price and purchase (or depreciated) cost — not on the full sale value. This margin scheme prevents double taxation.
| Scenario | Tax base | GST |
|---|---|---|
| Dealer buys at ₹4L, sells at ₹5L | ₹1L margin | 18% = ₹18,000 |
| Dealer buys at ₹6L, sells at ₹5.5L (loss) | No positive margin | No GST |
| Company sells depreciated car (WDV ₹3L) at ₹4L | ₹1L (sale − WDV) | 18% = ₹18,000 |
| Individual sells personal car to another individual | — | No GST |
The used-vehicle margin rate rose from 12% to 18% under the rationalised structure. GST applies only to a positive margin.
Margin scheme applies when
- A registered dealer sells the used vehicle
- No ITC was claimed on that vehicle
- It is sold as a second-hand good, as-is
Margin scheme does not apply when
- An unregistered individual sells to an individual — no GST
- ITC was claimed on the vehicle earlier
- The vehicle is sold at a loss — no GST due
Trade-In & Exchange at a Dealership
- GST on the new car applies on its full invoice value — the trade-in allowance reduces the cash payable but not the GST base.
- The old car taken in exchange, when the dealer resells it, attracts 18% on margin under the used-car rules.
- If the customer is a business that had claimed ITC on the old vehicle, an ITC reversal or GST on disposal may be triggered.
A common myth is that the exchange value is deducted before GST. It is not — GST on the new vehicle is charged on the full agreement value, and the trade-in only reduces the balance you pay in cash.
Frequently Asked Questions
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