After the GST 2.0 reform effective 22 September 2025, the compensation cess on vehicles was abolished and cars now sit in two slabs. Small cars pay 18% — petrol/LPG/CNG up to 1200cc or diesel up to 1500cc, and length up to 4000mm. Mid-size and large cars and SUVs pay a flat 40% (no cess). Electric vehicles stay at 5%. Motorcycles up to 350cc, three-wheelers, buses, trucks and ambulances are 18%.
GST Rate on Vehicles — Decision Table
Post-GST 2.0 rates for every common vehicle category. Compensation cess no longer applies — the GST rate below is the full tax. See the official GST rate schedule for notified entries.
| Vehicle Category | GST Rate | Cess | ITC |
|---|---|---|---|
| Electric vehicle (car, 2W, 3W — any size) | 5% | Nil | Blocked* |
| Small petrol/LPG/CNG car (≤1200cc & ≤4000mm) | 18% | Nil | Blocked* |
| Small diesel car (≤1500cc & ≤4000mm) | 18% | Nil | Blocked* |
| Mid-size / large car (>1200cc petrol or >1500cc diesel or >4000mm) | 40% | Nil | Blocked* |
| SUV (large, high engine & ground clearance) | 40% | Nil | Blocked* |
| Motorcycle up to 350cc | 18% | Nil | Blocked* |
| Motorcycle above 350cc | 40% | Nil | Blocked* |
| Three-wheeler (auto / e-rickshaw ICE) | 18% | Nil | Yes** |
| Bus / truck / goods vehicle | 18% | Nil | Yes** |
| Ambulance | 18% | Nil | Yes** |
| Auto parts / components (most) | 18% | Nil | Yes |
| Used car sold by a dealer | 18% | Nil | — |
Rates reflect the GST 2.0 two-slab structure effective 22 September 2025; compensation cess on vehicles is abolished. *ITC on cars for carrying ≤13 persons is blocked under Section 17(5). **Passenger/goods transport & resale are exempt from the block. Confirm the exact HSN entry on the official GST portal before invoicing.
Small Car 18% vs Big Car 40%
For a non-electric car, one classification decides the rate: whether it qualifies as a "small car". A small car is petrol/LPG/CNG up to 1200cc or diesel up to 1500cc, with length up to 4000mm. Cross any of those limits and the car moves to the 40% slab.
Small cars & mass-market vehicles
- Petrol/LPG/CNG ≤1200cc & ≤4000mm
- Diesel ≤1500cc & ≤4000mm
- Motorcycles up to 350cc
- Three-wheelers, buses, trucks
- No compensation cess
Big cars, SUVs & premium bikes
- Petrol >1200cc or diesel >1500cc
- Any car longer than 4000mm
- SUVs with large engine & clearance
- Motorcycles above 350cc
- No cess — 40% is the full tax
Before 22 September 2025 big cars and SUVs paid 28% GST plus 15–22% compensation cess (an effective 43–50%). GST 2.0 folds this into a single 40% rate with no cess, so many large cars and SUVs actually became cheaper even though the headline GST rate rose from 28% to 40%.
Not sure which slab your model falls in?
Get My GST Rate →GST on Electric Vehicles — Still 5%
The 56th GST Council retained the 5% GST rate on all electric vehicles through GST 2.0 — cars, two-wheelers and three-wheelers, mass-market or luxury, with no compensation cess. This is a deliberate policy nudge to keep EVs cost-competitive with petrol and diesel vehicles.
- A battery-electric vehicle of any size or price is taxed at 5% — far below the 18% / 40% on ICE cars.
- EV batteries are 5%, but charging / battery-swapping services are a separate service at 18%.
- Interest on an EV loan can qualify for Section 80EEB income-tax deduction (up to ₹1.5 lakh/year) under the old regime — an extra benefit stacked on the low GST.
How GST Adds Up — ₹10,00,000 Vehicle
18% Small car
40% Large car / SUV
On the same ex-tax value, an electric car would carry just ₹50,000 of GST (5%) with no cess — the reason EV total cost of ownership is so much lower on tax alone.
Buying a fleet or EV for business? Get your GST & ITC position mapped.
Talk to a GST Expert →ITC on Vehicles — When Is It Blocked?
Section 17(5) of the CGST Act blocks Input Tax Credit on motor vehicles used to carry persons with an approved seating capacity of up to 13 (including the driver). So a company generally cannot claim ITC on cars, SUVs or vans bought for staff or executive use.
| Business Activity | ITC? | Reason |
|---|---|---|
| Car dealership — buying for resale | Yes | Further supply of the same vehicle |
| Taxi / cab operator (Ola, Uber, tour) | Yes | Passenger transport is the core business |
| Driving school | Yes | Used for imparting driving training |
| Goods transport — trucks, delivery vans | Yes | Carrying goods is not blocked |
| Company car for employee / director use | No | Blocked under Section 17(5)(a) |
The ITC block turns on how the vehicle is used, not on the 18% / 40% slab.
Fleet, cab or dealership? Get your vehicle ITC eligibility confirmed.
Talk to a GST Expert →GST on Used & Second-Hand Cars
When a registered dealer sells a used vehicle, GST at 18% applies only on the margin (selling price minus purchase price) — not on the full price — under the margin scheme. A private sale between two individuals carries no GST. The GST Council unified the rate on all old and used vehicles, including EVs, to 18% on margin.
Dealer resale — margin scheme
Private individual-to-individual
GST applies when
- A registered dealer sells a used car
- Margin (sale − purchase) is positive
- Vehicle sold in the course of business
No GST when
- One individual sells to another privately
- Dealer sells at a loss (negative margin)
- Seller is unregistered / below threshold
Run a used-car business? Get margin-scheme invoicing set up right.
Talk to a GST Expert →Vehicle GST Compliance Checklist
Whether you deal in vehicles, run a fleet or buy for business, keep the GST basics right after the GST 2.0 changeover:
- Correct HSN & rate (18% / 40% / 5%)
- No compensation cess post-22 Sep 2025
- ITC block check under Section 17(5)
- Margin-scheme invoicing for used cars
- Tax invoice with vehicle details
- GSTR-1 (outward supplies)
- GSTR-3B (monthly / quarterly)
- ITC reconciliation where eligible
- E-invoicing applicability
- E-way bill on vehicle movement
- Books & records upkeep
The headline "40% GST on big cars" scares buyers, but the cess it replaced was often higher. Compare the all-in tax (GST + old cess), not just the GST rate, when you judge whether a vehicle got cheaper or dearer under GST 2.0.
Frequently Asked Questions
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