The Goods and Services Tax (GST) overhaul announced by Prime Minister Narendra Modi last month is now officially in force, bringing major changes to India’s automobile taxation. Small petrol and diesel cars are set to benefit from rate cuts, but luxury vehicles and high-end electric cars will now face higher levies, reshaping costs for premium buyers.

Under the new rules, cars longer than four metres with petrol engines above 1,200cc or diesel engines above 1,500cc are classified as “luxury goods” and will attract a 40% GST.

To offset some of the impact, the additional cess previously applied to these vehicles, ranging from 15% to 22%, has been reduced, keeping the total tax burden around 50%. (This is speculation as per a Reuters report, to be updated post the announcement)

This adjustment means that while the headline GST rises sharply, the reduction in cess slightly moderates the net increase. Depending on engine size, fuel type, and body style, these larger vehicles will see a smaller overall tax revision compared with the steep cuts applied to sub-4m cars.

Premium electric vehicles are also facing significant hikes. EVs priced between ₹20 lakh and ₹40 lakh, such as Tata’s Harrier EV and Mahindra’s XEV 9e, now fall under an 18% GST slab, up from the previous 5%. Luxury EVs costing over ₹40 lakh, including Mercedes, BMW, and Tesla models, are likely to attract the 40% GST slab. “These vehicles cater to the upper segment of society and are largely imported rather than manufactured domestically,” according to the tax panel, as reported by Reuters. Entry-level EVs, such as Tata Nexon EV and MG Comet, remain under review for concessional taxation.


The GST changes are part of the transition to “GST 2.0,” a simplified two-slab system of 5% and 18%, with a special 40% slab reserved for sin and luxury goods. The reform also includes the planned abolition of the compensation cess, expected by October 31, which will simplify compliance for manufacturers and dealers.

How the old GST structure worked

Prior to the reform, all passenger vehicles except EVs were taxed at a uniform 28% GST, with an additional cess ranging from 1% to 22%, depending on engine size, fuel type, and body configuration. Electric vehicles alone benefited from a 5% GST.

Vehicle category GST Cess Total tax payable
Sub-4m petrol up to 1200cc 28% 1% 29%
Sub-4m diesel up to 1500cc 28% 3% 31%
Cars up to 1500cc 28% 17% 45%
Cars above 1500cc 28% 20% 48%
SUVs (above 4m, above 1500cc, >170mm GC) 28% 22% 50%
Sub-4m hybrids 28% Nil 28%
Hybrids above 1200cc petrol / 1500cc diesel 28% 15% 43%
Electric vehicles 5% Nil 5%

Market impact

The GST reform is expected to boost sub-4m petrol and diesel car sales, offering relief to buyers during the festive season and reversing declines caused by rising prices and the growing popularity of used cars. Two-wheelers and compact vehicles are also likely to benefit from lower GST rates.

Luxury and premium EVs, however, face higher taxes, which could slow growth in India’s high-end electric segment. Tesla, for instance, plans to ship only 350-500 units to India this year, despite its global scale, and BYD has sold 10,000 luxury EVs since 2021. The revised GST could further affect demand for these imported models.

Midsize and large vehicles, including traditional luxury cars, are less affected in net tax terms but will still feel the impact of higher headline GST.

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