GST on Cars in India

Goods and Services Tax (GST) currently applies to most goods and services in India including motor vehicles. GST on cars in India is applicable across multiple slab rates of 5%, 12%, 18% and 28%. The most relevant GST rate on cars is 28% that applies to motor vehicles including those for personal as well as commercial use. The lowest GST rate on vehicles of 5% applies to carriages for use by disabled people and related accessories. However, GST is not the only tax applicable to motor vehicle sales, as a compensation cess of up to 22% may be levied on cars in addition to the 28% GST that is applicable. Thus the maximum taxc rate on cars after GST introduction is as high as 50%.

At the time of vehicle sales, a compensation cess is applicable in addition to the GST on cars. The following is a table showing the applicable tax rates on vehicles for private use after taking into account the applicable compensation cess and GST*:

*The vehicle specifications are as per the Motor Vehicle Act, 1988. The rates are liable to periodic change and list is not exhaustive.

From the above list it is clear that diesel vehicles with large engine capacities have the highest compensation cess and by extension the highest tax rates applicable to them. Simultaneously, cars with smaller engines and those driven by cleaner technologies such as electric/fuel cell feature a lower rate of compensation cess.

Commercial vehicles such as those designed for carrying passengers, goods or for agricultural use typically feature a GST rate ranging from 12% to 28%. The following are some key cases where 12% GST is applicable:

The following are some key examples where GST on cars and other vehicles is applicable at 18%:

The 28% rate of GST on cars and other vehicles for commercial use is applicable in the following cases:

Note: The above list is indicative. Access the full list with applicable GST rates here

GST compensation cess of 15% is also applicable over and above applicable GST to commercial vehicles capable of transporting up to 13 people including the driver. This compensation cess is in addition to the GST applicable to the specific vehicle type.

Originally used cars featured the same rate of GST as well as compensation cess as applicable to new vehicles. However the rates were subsequently brought down in order to boost the used car market. The currently applicable rates include 12% for smaller pre-owned vehicles i.e. petrol cars of engine capacity up to 1200cc and diesel cars of engine capacity up to 1500cc. The applicable rate of GST on used cars with engine capacity exceeding 1200cc for petrol and 1500cc for diesel cars is now 18%.

While lower GST rates compared to the earlier 28% have definitely helped, the most significant change has been the revision of rates applicable to compensation cess. As of 25th January 2018, compensation cess for all used cars irrespective of size was revised to nil in case no input tax benefit has been claimed under CENVAT credit or in lieu of any other taxes paid. The following is a representative list of taxes applicable to used car sales in India after implementation of GST on car (pre-owned) sales*:

*The above list is indicative and subject to periodic change.

Originally electric vehicles (EV) and their key accessories such as EV chargers and EV charging stations featured a GST rate of 18%. But, the 36th GST Council meeting held on the 27th July 2019 reduced the GST rate on electric vehicles to 5%. The same 5% GST rate is also applicable to EV chargers and charging stations as announced at the same meeting. This reduced rate is effective from 1st August 2019 onwards. It is important to note that this 5% GST rate will be applicable to all EV irrespective of whether they are for private use or commercial use.