The middle class has received the perfect gift ahead of the festive season, as the Modi government has announced significant Goods and Services Tax (GST) reductions on automobiles. Following a GST Council meeting held yesterday (3rd September), the government declared significant reductions in indirect taxes on two-wheelers, three-wheelers, and four-wheelers.
The decision is expected to benefit the middle class, which usually makes automobile purchases during the Diwali season, to avail the special discount offers provided by automakers around this time. Under the reforms, the GST slab has been reduced from 28% to 18% on small passenger cars, three-wheelers, ambulances, motorcycles up to 350cc, and on new pneumatic tyres.
Petrol, LPG or CNG-driven cars with an engine capacity of under 1200 cc and not over 4 m long and diesel cars with an engine capacity not exceeding 1500 cc and length up to 4m, have also been included in the 18% tax category.
Automobiles made affordable. GST on Cars has been reduced substantially from 28% to 18%.#NextGenGST pic.twitter.com/SUkP5CqeI9
— CBIC (@cbic_india) September 3, 2025
Cars like the Maruti Alto, Maruti Fronx, Tata Nexon, Maruti Brezza, Hyundai Venue, Mahindra XUV 3OO, Kia Sonet, Baleno, and Skoda Kushaq fall under the four-meter length category and will be subject to the reduced 18% GST rate.
In what the government described as the ‘Next-Generation Reforms’, it has made an effort to promote eco-friendly commute options by reducing tax on bicycles from 12% to 5%.
Commute becomes cheaper with #NextGenGST. pic.twitter.com/3TIKRrgTVt
— Nirmala Sitharaman Office (@nsitharamanoffc) September 3, 2025
Luxury vehicles subject to new formed 40% slab
Under the GST reforms, luxury cars have been subjected to a condsolidated 40% tax. Earlier, a 28% GST and 17-22% compensation cess used to be levied on luxury cars, bringing the net taxes to 45-50%. After the reforms are applied, luxury cars will become cheaper as there will be a 5-10% reduction in the tax. The modification has been done by the government to do away with compesnation cess.
Besides, motor vehicles categorised as Utility Vehicles, by whatever name called including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, length over 4 m, and ground clearance of 170 mm and above, will be taxed under the 40% slab. Bikes exceeding 3500 cc will also attract a 40% tax rate.
Revised GST rates for other vehicles
Under the revised GST rates, three-wheelers, buses, and ambulances will attract reduced GST rates of 18% from the earlier 28%. Similarly, the GST rates for Lorries and trucks will also be reduced to 18%.
In addition to that, trailers, semi-trailers of tractors with 1800 cc and non-road tractors will be taxed at 5%. An 18% tax rate will apply to road tractors for semi-trailers with an engine capacity of above 1800 cc. Bikes with up to 3500cc engine capacity will be taxed at the rate of 18%.
All car parts and accessories will be subject to an 18% GST, while the GST for electric vehicles will remain unchanged at 5%.
