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The Goods and Services Tax Council of India held its 56th meeting on September 3, 2025. This council proposed some GST reforms relating to the rates for the well-being of the middle-class section of society.
At first, GST followed a four-tier tax structure, but now it has been simplified into a two-tier system with rates of 5% and 18%. And, a special tax slab of 40% is given to luxurious and sin (addictive) goods. This revised tax rate will take effect from September 22, 2025.
The GST tax reform is also implemented on vehicles such as cars. Depending on the car type, the GST tax rate is determined by the Council of India. To know everything about the reformed tax rates and insurance GST rate for cars, join us in this blog.
GST Rate Reform for Cars
From 22 September 2025, a new slab for GST rate will be implemented on the purchase of a car in India. For some cars, the tax rate is reduced, and some get a little hike. The category to implement tax depends upon the CC and the type of car you are going to buy.
This reform has abolished the cess charge at the time of car purchase. This cess is an additional amount charged by the Indian government that ranges between 1 to 22%. This cess restriction is one of the main highlights of the GST reform 2025.
1 For Petrol Cars up to 1200 CC and 4 Metres in Length
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 18% |
| Cess Rate | 1% | 0% |
| Net Benefit | 11% | |
2 For Diesel Cars up to 1500 CC and 4 Metres in Length
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 18% |
| Cess Rate | 3% | 0% |
| Net Benefit | 13% | |
3 For Hybrid Cars up to 1500 CC and 4 Metres in Length
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 18% |
| Cess Rate | 0% | 0% |
| Net Benefit | 10% | |
4 For Cars up to 1500 CC and above 4 Metres in Length (Petrol and Diesel)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 17% | 0% |
| Net Benefit | 5% | |
5 For Cars up to 1500 CC and above 4 Metres in Length (Hybrid)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 15% | 0% |
| Net Benefit | 3% | |
6 For Cars with more than 1500 CC and Other than SUV (Petrol and Diesel)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 20% | 0% |
| Net Benefit | 8% | |
7 For Cars with more than 1500 CC and Other than SUV (Hybrid)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 15% | |
| Net Benefit | 3% | |
8 For SUV Cars (Petrol and Diesel)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 22% | |
| Net Benefit | 10% | |
9 For SUV Cars (Hybrid)
| Old Tax Rate | New Tax Rate | |
|---|---|---|
| GST Rate | 28% | 40% |
| Cess Rate | 15% | |
| Net Benefit | 3% | |
Note: The above tax rate is just for informative purposes. Please consider the government authentic source for GST filing purposes.
Importance of GST Tax Rate Reform for Cars
This new GST (Goods and Services Tax) reform plays its crucial role in the Indian economy. Here are some of its main importance:
- Reduces Car Prices: Lower GST rates reduce the overall cost of the car. This decline in cost makes the car affordable for a larger section of society.
- Boosts Sales: Reasonable GST rates reduce car prices and encourage more people to buy cars.
- Supports the Automobile Industry: Higher sales help manufacturers and dealers to grow their brand.
- Benefits Related Sectors: Insurance, finance, and servicing centers also benefit when car demand rises.
- Impacts Government Revenue: Balanced GST increases demand and ensures steady tax collection.
- Encourages Market Growth: Fair GST rates promote healthy growth of the automobile market.
- Increased Expenditure in Market: When car prices fall, people save money and spend more on other goods and services, which fuels the economy.
Is There Any Reform in the Car Insurance GST Rate?
No, there are no changes in the car insurance , GST rate in India. It works on the former rates only.
As per the Goods and Services Tax Rule in India, car insurance falls under the 18% tax slab. Anyone who is buying car insurance has to pay 18% on their car, irrespective of the CC (cubic capacity), size, and type (small, mid-size size or luxury).
The government continued to maintain the car insurance GST in the 56th council meeting, as it felt effective and reasonable at the same time.
Impact of Reformed GST Rate on Car Insurance
There is no direct relation between the GST rate on car purchase and car insurance premiums. But there can be some indirect impact on the insurance cost. No changes in GST rate on car insurance services have no direct influence on the premium amount.
But, GST reduction on the purchase of a car lowers the overall price, which in turn reduces the Insured Declared Value (IDV) of the vehicle.
Since IDV is one of the main factors in calculating insurance premiums, a lower IDV can reduce the premium amount.
Conclusion
This GST reform is not just a change that reduces the price of a car, but makes the car purchase more accessible among the middle class. Manufacturers of automobiles will also benefit from this new GST regime, along with the consumers.
While GST on cars directly affects purchase prices, it also has an indirect impact on insurance IDV and premiums.
A balanced GST structure ensures growth in the auto industry. It also benefits buyers and contributes to the country’s economic development.
FAQs
The 2025 GST reform aims to make cars more affordable by adjusting the tax structure, which can increase sales and support the automobile industry.
It will reduce the overall price of cars, making them easier to purchase. Buyers may also save money that can be used for fuel, maintenance, or other expenses.
No, small cars and luxury cars may have different GST rates. Luxury cars often carry higher tax rates compared to budget-friendly cars.
Yes, a reduction in car prices can boost related industries like finance, insurance, car servicing, and accessories by increasing market demand.
The insurance GST rate for car insurance policies remains at 18%, which means GST reform on car prices does not directly change insurance premiums.
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