New GST Reforms- Cars, Bikes And Scooters To Get Cheaper (And Costlier)

Latest Launches | Sep 05, 2025 | Posted By: Kartik Rangam

After a teaser during the Independence Day speech by Prime Minister Narendra Modi about GST reforms, the GST Council has approved simplification of the slabs. No longer will we have complicated slabs and cess rates, as most services will now slot into two brackets: 5% and 18%. The compensation cess has been removed, and instead a new slab has been introduced for sin and luxury items, which attracts a tax of 40%. While almost everything is affected by this revision, we limit our scope to the confines of the automobile sector, being a site about vehicles after all.

TLDR: All cars to get cheaper while bikes above 350cc will see a 9% GST hike. If you are interested in a more thorough overview, keep reading as we dive deeper into the new reforms.

All Cars To Get Cheaper

With the reform, all ICE cars will be placed in two slabs, 18% or 40%.To understand the new GST reforms, here is a look at the current GST slabs for cars:

Current Car Tax

Car Type	Engine and Length	GST	Compensation Cess (maximum)	Total Tax
Small Car (Petrol)	Up to 1200 cc and less than 4 meters	28%	1%	29%
Small Car (Diesel)	Up to 1500 cc and less than 4 meters	28%	3%	31%
Passenger Car	Up to 1500 cc	28%	17%	45%
Passenger Car	Above 1500 cc	28%	20%	48%
SUVs	Above 1500 cc and longer than 4 meters	28%	22%	50%
Hybrid Vehicles	Up to 1200 cc (petrol) or 1500 cc (diesel) and less than 4 meters	28%	Nil	28%
Hybrid Vehicles	Above 1200 cc (petrol) or 1500 cc (diesel) or longer than 4 meters	28%	15%	43%
Luxury Cars	Above 1500 cc	28%	20%	48%
Electric Cars	No conditions	5%	Nil	5%

Source: SIAM

As mentioned in the table above, the tax on conventional fuel cars ranges from 29-50%. While the GST rate is the same across all types at 28%, the cess complicates things. The reform will remove cess and slot the cars in two brackets, which are as follows:

New Car Tax

Car Type	Engine and Length	New GST	Current Total Tax	New Price
Small Car (Petrol)	Up to 1200 cc and less than 4 meters	18%	29%	Cheaper
Small Car (Diesel)	Up to 1500 cc and less than 4 meters	18%	31%	Cheaper
Passenger Car	Up to 1500 cc	40%	45%	Cheaper
Passenger Car	Above 1500 cc	40%	48%	Cheaper
SUVs	Above 1500 cc and longer than 4 meters	40%	50%	Cheaper
Hybrid Vehicles	Up to 1200 cc (petrol) or 1500 cc (diesel) and less than 4 meters	18%	28%	Cheaper
Hybrid Vehicles	Above 1200 cc (petrol) or 1500 cc (diesel) or longer than 4 meters	40%	43%	Cheaper
Luxury Cars	Above 1500 cc	40%	48%	Cheaper
Electric Cars	No conditions	5%	5%	Unchanged

While the GST has been increased from 28% to 40%, the overall cost of all cars is set to decrease. This is primarily due to the removal of cess, which hiked the taxes of certain ICE models by up to 50%. Although pure electric cars retain the 5% tax, Hybrids will get cheaper.

More CC More Tax For Bikes

While cars are getting cheaper, it's not the same for bikes. Currently, bikes are divided into two categories, which are subject to the following GST:

Current Two-Wheeler Tax:

Vehicle	GST	Compensation Cess	Total Tax
Two-wheelers upto 350 cc	28%	NIL	28%
Two-wheelers above 350 cc	28%	3%	31%

Source: SIAM

It's certainly simpler than tax slabs on cars. Anything up to 350 cc is taxed at 28%, while anything above attracts a 31% tax. The new slab, however, makes the 350cc+ bikes costlier.

New Two-Wheeler Tax:

Vehicle	New GST	Current Total Tax	Cost Change
Two-wheelers upto 350 cc	18%	28%	Cheaper
Two-wheelers above 350 cc	40%	31%	Costlier

With the new GST reform, two-wheelers upto 350 cc will see a 10% price drop. Anything larger, however, is taxed at 40%, 9% higher than earlier. This means bikes such as the Triumph Speed 400, KTM 390 Duke and Harley Davidson X440 will be costlier, models like Husqvarna Vitpilen 250, Hero Super Splendor XTEC and Hero Xtreme 125R will become more affordable.

This revision will affect companies such as Kawasaki and Triumph, whose portfolio consists mostly of 350cc+ bikes.

Miscellaneous Tax Changes

While these changes do not apply to personal vehicles, they still come under the automotive sector.

Vehicle Type	Current Total Tax	New Tax	Cost Difference
3-wheelers classified under HSN 8703	28%	18%	Cheaper
Vehicles that carry over 10 people are classified under HSN 8072	28%	18%	Cheaper
Vehicles supplied as ambulances	28%	18%	Cheaper
Tractors with more than 1800 cc	12%	5%	Cheaper
Tractors with a semi-trailer with more than 1800 cc	28%	18%	Cheaper

FAQs

With any new policy, especially one of this scale, it's expected that you will have some questions. We have answered some of the more common doubts you might have below:

1. When will the GST reform come into force?

The GST reform for automobiles will come into effect from 22nd September 2025.

2. Is GST included in the ex-showroom price?

Yes, the ex-showroom price consists of GST. With the new reform, ex-showroom prices of vehicles will see a change.

3. What is the GST for 350cc bikes?

A 350cc bike will attract an 18% GST, while anything higher will be taxed at 40%.

4. What is the sin and luxury tax?

The Sin and Luxury tax has been introduced for certain items which attracted cess compensation. Due to the removal of the cess, items which are branded as Sin or Luxury will now attract 40% GST. In the automobile sector, this includes bikes above 350cc, and cars longer than 4 meters or with an engine bigger than 1500 cc.

5. With an increase in GST on large cars, how are they getting cheaper?

While the GST has increased from 28% to 40%, the removal of cess is what's making these cars cheaper. Currently, cars attract a cess ranging from 1% to 22% which will be removed. This will reduce the maximum tax of 50% on large cars to 40%.

6. What is the GST on electric bikes and scooters?

GST on electric vehicles, which includes bikes, scooters, and cars, remains unchanged at 5%.

Conclusion

The simplification of GST is a step in the right direction. Affordable cars made more affordable is something everyone can agree on, whether it be consumers or manufacturers. The hike on 350cc-plus bikes, however, can be a point of contention. While they can be considered a ‘luxury’ item due to being considered a fun rather than necessary purchase, the overall sales of these bikes is a small 2% when compared to the entire sector. With such a small sale figure however one can also claim the tax bracket increase will not generate a significant revenue, however that estimate is better left for the financial gurus.

Published on Sep 05, 2025