Small cars, motorcycles up to 350cc to get cheaper as GST Council slashes tax rate from 28% to 18%

Small cars up to 4 metres in length and motorcycles up to 350cc are going to get cheaper as the GST Council on Wednesday slashed Goods and Services Tax (GST) on these vehicles from 28% to 18%. The new rates will be effective September 22, 2025.

Mid-sized and large-sized cars above 4 metres in length will be taxed at 40%, Finance Minister Nirmala Sitharaman said.

The move is expected to boost sales of small cars, which saw a consistent decline over the past several years due to price hikes amid stricter emission and safety norms.

The GST rate rationalisation also fulfils the long-pending demand of the two-wheeler industry which had been batting for lower GST rates, bringing the taxes on par with consumer durables such as TVs and air conditioners.

But the GST Council’s decision is not going to go down well with automakers such as Royal Enfield which make motorcycles above 350cc. Motorcycles exceeding 350 cc are kept under the 40% tax slab.

The higher GST rate on motorcycles comes days after Eicher Motors’ executive chairman Siddhartha Lal appealed to policymakers to keep a single GST rate for all motorcycles, irrespective of their engine capacity. “A differential rate would dramatically shrink the domestic 350cc-plus segment and choke the investment needed for India to compete globally,” he had said.

Electric vehicles will continue to attract only 5% GST, providing a much needed relief to the luxury EV industry as there were speculations of a rate hike earlier.

The GST Council has also reduced the GST on three-wheelers from 28% to 18%. The tax rate on motor vehicles used for transport of goods, too, has come down to just 18%.

All auto components and parts will attract 18% GST as against 28% GST earlier. This also comes as a relief for the auto components industry which is facing higher tariffs in the U.S., their biggest export market.