Wed Sep 03 18:30:00 UTC 2025: ## GST Rate Cuts to Make Small Cars and Bikes Cheaper This Festive Season

**By Tirth**

**Modified On Sep 04, 2025 01:01 AM**

In a move set to boost the auto sector and bring cheer to consumers ahead of the festive season, the GST Council has slashed the tax rate on small cars, motorcycles up to 350cc, and three-wheelers from 28% to 18%. This significant reduction, effective September 22, 2025, promises to make entry-level vehicles more affordable.

The new GST rates define “small cars” as petrol vehicles with engines up to 1200cc or diesel vehicles up to 1500cc, with a maximum length of 4000mm. Popular models like the Maruti Dzire and Kia Syros will now fall under the 18% GST slab. Similarly, bikes like the Royal Enfield Bullet and Classic 350 will also benefit. Hybrid cars meeting the same engine and length criteria, such as the Brezza S-CNG and Nexon CNG, will also be taxed at the lower rate.

While entry-level vehicles are becoming more accessible, luxury cars, larger bikes (above 350cc), and higher-end hybrids exceeding the size and engine capacity limits will now be subject to a new 40% GST slab. This also applies to items like aircraft and yachts. Despite this new tax slab, luxury cars and big bikes will still attract a lesser tax since the earlier vehicles would have an effective tax of 50% including a 22% compensation cess, which has been eliminated.

However, the news isn’t all bad for buyers eyeing larger vehicles. Cars exceeding 4 meters in length and/or with engine capacities above 1500cc, such as the Hyundai Creta, Kia Seltos, Tata Harrier, and Mahindra XUV700, will also see price reductions. The elimination of the 22% compensation cess means these vehicles will now be taxed at a flat 40%, down from an effective rate of 50%.

The GST Council has also streamlined taxes for commercial vehicles, with buses, trucks, and ambulances now uniformly taxed at 18% (previously 28%). Auto parts have also been consolidated under a single 18% rate, regardless of HS code classification, simplifying the supply chain.

Electric vehicles remain the most tax-favored mobility choice, with no changes to the concessional 5% GST rate for EVs, two-wheelers, and three-wheelers.

Experts predict that the 10 percentage point reduction in GST for small cars and commuter bikes could translate to significant savings for consumers. For example, a hatchback priced at Rs 6 lakh (ex-factory) could become cheaper by up to Rs 60,000.

The GST rate changes, effective September 22, 2025, is expected to boost the automobile sector, increasing demand for locally made cars and two-wheelers, while also making luxury cars and premium cars more affordable, albeit by a lesser margin.

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