In a massive rationalization of India’s tax structure, the GST Council has announced significant changes that will make everyday vehicles and essential goods more affordable, while creating a new top tier for luxury and sin products. The modifications will take effect on September 22, 2025, and are a component of the new “GST 2.0” framework that was unveiled on Wednesday, September 3.
The overhaul simplifies the existing four-tier slab system into a clearer structure: 0%, 5%, 18%, and a new 40% slab, effectively abolishing the 12% and 28% brackets.
How Will the New GST Affect Vehicle Prices?
This is the most significant change for the common consumer. The tax rates on vehicles have been completely rejigged based on their category.
Small Cars & Bikes Get a Major Tax Cut: Small petrol cars (under 1200cc and 4m length), small diesel cars (under 1500cc and 4m length), and motorcycles under 350cc engine capacity will now be taxed at 18%. Popular models like the Hyundai i10, Maruti Alto, and commuter bikes would become more affordable as a result of this significant decrease from the previous rate of 28%.
Ambulances and Three-Wheelers: These vehicles have also been moved down to the 18% bracket from 28%, making them more affordable for essential services and public transport.
Bigger Cars: A Surprise Tax Cut? Larger cars and SUVs that do not meet the ‘small car’ definition (like Mahindra Thar, Tata Safari, Toyota Fortuner) will be placed in the new 40% slab.However, this is actually a reduction from their previous effective tax rate, which was 28% GST plus a cess of up to 22%, taking the total tax burden to nearly 50%. Customers in this market are relieved by a flat 40% rate.
Big Bikes Get More Expensive: Motorcycles exceeding 350cc engine capacity (like Royal Enfield classics, cruisers, and premium bikes) will see a tax hike.In the past, they received 28% GST plus a 3-5% cess, for a total of about 32%. The showroom price will increase as a result of the 40% flat tax they must now pay.
Electric Vehicles (EVs): All electric vehicles continue to enjoy the lowest GST rate of 5%, underscoring the government’s push for green mobility.
What Defines a “Small Car”?
The government has provided a clear definition to avoid ambiguity. A ‘small car’ eligible for the 18% GST rate must meet the following criteria:
- For Petrol Cars: Engine capacity up to 1200cc and length not exceeding 4000 mm.
- For Diesel Cars: Engine capacity up to 1500cc and length not exceeding 4000 mm.
This definition covers a significant portion of the entry-level and hatchback segment in India.
Which Everyday Items Have Become Cheaper?
The GST reduction isn’t just for vehicles. A wide range of everyday essentials and common goods have been moved to lower tax brackets, effectively making them less expensive.
- Now at 0% GST: Several life-saving and cancer drugs, individual health and life insurance policies, exercise books, notebooks, pencils, and UHT milk.
- Now at 5% GST: This bracket now includes household staples like hair oil, toothpaste, shampoo, toilet soap, butter, ghee, cheese, and namkeens. It also includes important items like baby diapers, sewing machines, thermometers, and corrective spectacles.
- Agricultural Benefits: Items like tractor parts, bio-pesticides, drip irrigation systems, and agricultural machinery have been placed in the 5% bracket to support farmers.
Also Read: What’s a ‘Sin Tax’? From Gold Flake, Pan Masala to Beer, Decoding GST’s New 40% Slab
What Falls into the New 40% “Sin & Luxury” Tax Bracket?
The new top slab will only be used for items that are considered dangerous, extremely expensive, or unnecessary. This comprises:
- All Tobacco Products: Cigarettes, gutkha, pan masala, bidis, and chewing tobacco.
- Sugary Drinks: Aerated waters, caffeinated beverages, and energy drinks with added sugar.
- Luxury Items: Aircraft for personal use, yachts, and revolvers.
- High-Capacity Vehicles: Motorcycles above 350cc and large cars/SUVs.
- Gambling: Betting, casinos, horse racing, and online money gaming.
