GST on Cars and Vehicles — Complete Rate Guide Including EV and SUV 2025

The GST on vehicles operates on a two-part structure: a base GST rate of 28% that applies to all motor vehicles (except EVs and certain exempt categories), plus a compensation cess that varies by vehicle segment. The compensation cess was introduced under the GST (Compensation to States) Act 2017 to compensate states for revenue loss during GST transition. While the compensation period for states ended in June 2022, the cess continues as a revenue measure and is expected to remain through FY 2025-26.nnThe combined incidence of GST and compensation cess makes automobiles one of the highest-taxed product categories in India. A luxury SUV with a pre-tax ex-showroom price of Rs.25 lakh carries GST of Rs.7 lakh (28%) plus compensation cess of Rs.5.5 lakh (22%) — a total tax burden of Rs.12.5 lakh, making the on-road price Rs.37.5 lakh before state registration, insurance, and other charges. This high tax incidence has been a source of ongoing debate between the automobile industry and the government.nnIn contrast, electric vehicles are taxed at just 5% GST with zero compensation cess. This 45 percentage point differential in effective tax rate between a comparable petrol and electric vehicle is one of the most significant fiscal incentives for EV adoption in India. Combined with FAME-II subsidies and state EV policies, the tax advantage has accelerated EV penetration particularly in the two-wheeler and commercial vehicle segments.

The compensation cess rate for conventional motor vehicles is determined by three parameters: fuel type (petrol or diesel), engine displacement (cc), and vehicle length (metres). These three parameters together place a vehicle in one of the cess slabs ranging from 1% to 22%.nnSmall petrol cars — petrol or CNG engine below 1200cc and length below 4 metres — attract 1% compensation cess for a total incidence of 29% (28% GST + 1% cess). Small diesel cars — diesel engine below 1500cc and length below 4 metres — attract 3% cess for a total of 31%. Mid-size cars — petrol above 1200cc or diesel above 1500cc, or any car longer than 4 metres — attract 15% cess for a total of 43%. Large luxury cars — engine above 1500cc and length above 4 metres — attract 15% cess (43% total). Large SUVs — engine above 1500cc, length above 4 metres, and ground clearance above 170mm — attract 22% cess for a total incidence of 50%. Hybrid vehicles (non-plug-in) attract varying cess rates; plug-in hybrids are treated as EVs at 5%.

Input Tax Credit on motor vehicles is one of the most widely misunderstood areas of GST for businesses. Section 17(5)(a) of the CGST Act blocks ITC on motor vehicles for transportation of persons with a seating capacity of 13 persons or less — this covers virtually all cars and SUVs used by companies for director travel, employee commute, client visits, and business development activities.nnThe ITC block is absolute for vehicles used for personal transport of company personnel — there is no partial ITC, no proportionate ITC, and no exception based on usage percentage. Even if a company car is used 100% for business meetings and client visits, the ITC on the GST paid on the car purchase is fully blocked. This makes the GST paid on company car purchases an irrecoverable cost that increases the effective acquisition cost of corporate vehicles.nnThe exceptions to the vehicle ITC block under Section 17(5)(a) are important for specific industries. Vehicle dealers who hold cars as stock-in-trade for resale can claim full ITC — the cars are inventory, not used for internal transport. Tour operators using vehicles to provide taxable transportation services can claim ITC. Driving schools using vehicles to impart driving training can claim ITC. Companies providing vehicles as part of their taxable service — such as chauffeur-driven car rental services — can claim ITC since the vehicle is a business input for a taxable service. For all other businesses, the ITC block applies regardless of business justification.

The GST treatment of used car sales differs from new car sales in an important way: unregistered individuals selling their own used cars pay no GST — the private sale of a personal vehicle is not a supply in the course of business and is outside the GST framework. However, registered dealers who purchase and resell used cars are taxable on their margin — the difference between the selling price and the purchase price — not on the full sale consideration.nnThe GST rate for used vehicles sold by registered dealers is reduced from the full rate to a concessional rate based on the value. For old and used vehicles with engine capacity up to 1200cc (petrol) or 1500cc (diesel) and length up to 4 metres, the GST rate is 12% on the margin. For other old and used vehicles (mid-size and larger), the rate is 18% on the margin. For old and used electric vehicles, the rate is 12% on the margin — different from the 5% new EV rate.nnThe margin is computed as selling price minus purchase price (excluding GST). If the purchase price exceeds the selling price — where the dealer makes a loss on the transaction — no GST is payable on that vehicle. Dealers cannot aggregate margins across different vehicles — each vehicle transaction is assessed independently. Dealers using the margin scheme cannot claim ITC on the purchase price paid for used vehicles from individuals. If a dealer pays GST to a previous registered owner on the purchase, they can claim that as ITC and pay GST on the full selling price under the regular scheme.

Vehicle-related purchases and services carry varying GST rates that buyers should account for when computing total vehicle ownership cost. Vehicle insurance — both comprehensive and third-party — attracts 18% GST on the premium. On a Rs.20,000 annual premium, the GST component is Rs.3,600. Health insurance for drivers or passengers as riders is similarly at 18%.nnVehicle accessories attract different GST rates depending on category. Tyres and tubes attract 28% GST — the same as the vehicle itself. Engine oil and lubricants are at 18% GST. Batteries (conventional lead-acid) are at 18%. Lithium-ion batteries for EVs are at 18% when sold separately. Seat covers and car interior accessories in fabric or rubber are at 12% or 18% depending on the specific material. GPS devices and vehicle tracking systems are at 18% as electronic devices.nnRoad tax is a state government levy and is not subject to GST — it is outside the GST framework entirely. State registration charges and road tax are computed under each state's Motor Vehicles Act and vary significantly. For businesses claiming ITC on vehicle insurance (for freight vehicles or for tour operators with vehicle fleets), the 18% GST on insurance premium is claimable as ITC provided the underlying vehicle qualifies for ITC. For regular company cars with blocked ITC, the 18% GST on insurance is also blocked as it is directly related to the non-ITC vehicle.