GST overhaul effective 22 September 2025 raises taxes on large SUVs to 40%
Many compact cars and motorcycles shifted to an 18% GST band, lowering prices
Electric vehicles retain a preferential 5% GST, preserving affordability incentives nationally
Policy reshapes festive-season pricing and dealer strategies for compact versus premium models
After the GST Council’s overhaul of vehicle taxation, SUVs and other large passenger vehicles will face a much higher tax burden. This will reshape prices across India’s auto market right ahead of the festive selling season.
Under the new structure, effective 22 September 2025, many compact petrol and diesel cars and mass-market motorcycles are moved into an 18% GST band, while larger passenger cars, premium SUVs, motorcycles above 350cc, yachts and private aircraft are placed in a flat 40% GST slab.
The 40% rate replaces a mix of 28% GST plus separate cesses that previously applied to many luxury models, consolidating the levy but in many cases raising taxes on big SUVs and high-end variants.
GST Rate Breakup
Small petrol cars with engines up to 1,200cc and small diesel cars up to 1,500cc that do not exceed 4,000mm in length, and motorcycles up to 350cc, are winners from the cut to 18%. Analysts say it could lower showroom prices by 5-10% for affected models. Electric vehicles retain a 5% GST, preserving their preferential status.
The change will lift the tax incidence on several large SUVs, including popular models such as the Mahindra Scorpio, Thar and certain Toyota Innova variants, that now fall under the 40% slab.
Expected Outcome
For some variants the new flat rate may be lower than the prior GST-plus-cess total, but hybrids and premium trims that previously enjoyed lower effective taxes will often become more expensive.
Officials and industry executives provided example impacts: small models such as the Maruti Alto and Swift family could see reductions in the tens of thousands, while a Tata Nexon base variant may fall by a larger sum if it meets small-car criteria. Exact sticker changes will vary by variant, registration charges and dealer strategy.
Finance Minister Nirmala Sitharaman called the move a rationalisation intended to boost affordability for mass-market mobility while ensuring luxury buyers bear a larger share.
The near-term market signal to watch: dealer price lists, festive-season promotions and sales momentum in small cars versus premium SUV bookings. The GST overhaul redistributes tax incidence sharply, cheaper entry-level mobility, costlier large SUVs and premium variants nationwide.
