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GoM accepts 2 rate GST structure: Cheaper hatchbacks, SUVs, but luxury cars stay pricey

India's GST panel has backed a proposal to scrap 12% and 28% slabs, moving to a simpler two-rate system of 5% and 18%, while luxury cars remain under a 40% tax. The reform, branded as GST 2.0, could reshape car prices across segments once cleared by the GST Council.

GST shake-up: Cars, bikes, insurance all set for new tax structure
GST shake-up: Cars, bikes, insurance all set for new tax structure
| Updated on: Aug 21, 2025 | 02:47 PM

New Delhi: The Group of Ministers on GST rate rationalisation has thrown a curveball at India’s tax structure. After a long meeting chaired by Bihar Deputy Chief Minister Samrat Choudhary, the panel of six ministers decided that the familiar four-slab system is history. What we are heading towards is a simpler structure with just two rates: 5% and 18%.

For automobile buyers, this could mean a shake-up in showroom prices across categories right before the festive season starts. From hatchbacks that sit in the “common man” bracket to luxury cars that roar past 200 kmph, tax realignments will decide who pays more and who saves. The recommendations will now be placed before the GST Council for a final call.

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What changes for GST on cars under the new proposal

  • The existing 12% and 28% slabs are gone.
  • Most goods and services under 12% will move to 5%.
  • Nearly 90% of items that were taxed at 28% will shift to 18%.
  • Luxury cars will not be spared, staying under a higher 40% slab that remains for sin and luxury items.

The Finance Minister told the panel that this rationalisation would offer relief to farmers, middle-class families and small businesses, while ensuring the system stays transparent and growth-oriented.

Why this matters to Indian car buyers

Cars in India have always been sensitive to GST tweaks. For example:

  • Entry-level hatchbacks and budget sedans that were taxed at 12% could now fall under 5%, reducing on-road costs.
  • Mass-market SUVs and premium bikes that often sit under the 28% bracket may move to 18%, a cut that could bring cheer to enthusiasts waiting for that dream machine.
  • Luxury cars and imported supercars, however, will continue to attract the 40% levy, keeping them firmly in the aspirational zone.

This rejig makes India’s car market more predictable, at least on the taxation front. If approved, the new slabs might align the industry better with consumer demand during festive season launches.

What’s next for GST 2.0

Prime Minister Narendra Modi had already hinted at a big GST reform during his Independence Day speech, calling it GST 2.0 and promising action before Diwali. With the GoM now on board, the stage is set for the GST Council to take a final decision.

For car enthusiasts, it might be the right time to keep an eye on upcoming launches. Price tags could shift in unexpected ways. And for luxury car buyers, well, the 40% slab isn’t going anywhere soon.

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