How Cars Are Taxed in India

How GST, cess and registration charges shape car prices in India, and how the 2025 GST reform changed taxes on small and large vehicles.

Taxes make up a large share of what Indians pay for vehicles.

GST before 2025

Under GST from 2017, most cars were taxed at 28 percent, plus a compensation cess ranging from about 1 percent for small cars to over 20 percent for large SUVs. Total taxes on big cars could approach 50 percent.

The 2025 reform

In September 2025, the GST Council simplified rates:

Small cars and two-wheelers up to 350cc moved to 18 percent, cutting prices noticeably.
Larger cars and SUVs moved to a 40 percent rate, with the separate cess removed.
Electric vehicles stayed at 5 percent.

Car sales rose strongly after the cuts, especially for small cars.

State charges

Road tax or registration charges, set by states, add several percent to prices, and vary widely.
Insurance is mandatory.

Why tax cars heavily?

Revenue.
Discouraging congestion and pollution.
Treating cars as luxury goods.

Economic debate

High taxes raise prices and slow sales, affecting jobs in the industry.
Taxing large cars more is seen as progressive, but can hurt domestic manufacturers of SUVs.
Low taxes on EVs encourage cleaner vehicles.

The small car price cut

After the 2025 GST cut, a small car's on-road price falls by tens of thousands of rupees. A family that was waiting decides to buy, and dealers report a surge in bookings during the festive season.

Thinking the sticker price is mostly the car's cost

GST, cess and state road taxes can add a large share to vehicle prices.

Key takeaways

Cars faced 28 percent GST plus cess from 2017.
The 2025 reform cut small cars and small two-wheelers to 18 percent and set 40 percent for large cars.
EVs remain at 5 percent GST.
State road taxes add further costs.