GST Reduction on Cars in India (2025) – What It Means for You

Planning to buy a new car this year? – Well, you're in luck because the GST on small cars will now be reduced. As of the 56th GST Council Meeting announcement, the car GST rates will now be reduced from 28% to 18% making cars more affordable.

This GST cut doesn't just lower the purchase price; it also lowers your car insurance premiums. This is because insurance is calculated on your car's insured declared value (IDV), so a lower vehicle price translates to a reduced IDV, which can slightly lower your premium.

For policyholders, this means long-term savings on both car purchases and insurance protection. Curious about how else this could benefit you? Let's take a closer look.

New Car GST Rates in 2025

As of September 3, 2025, India's GST Council announced a reduction of GST slabs for automobiles, bringing relief for car buyers. This not only simplifies the tax calculations but also removes multiple layers of taxes levied on cars, resulting in a decrease in their total price.

Here are the key highlights of the updated GST Structure:

• Small Cars (petrol ≤ 1200 cc / diesel ≤ 1500 cc, length ≤ 4 m):

  Now attracts a flat 18% GST, down from a combination of 28% GST plus a 1–3% compensation cess.

• Mid-size Cars & SUVs (larger engines or length > 4 m):

  A uniform 40% GST rate has replaced the earlier setup of 28% GST plus a variable cess (up to 22%).

• Electric Vehicles (EVs):

  Continue to benefit from a reduced 5% GST with no cess, supporting India's push toward sustainable mobility.

Earlier, cars were charged with a base GST of 28% + additional Compensation CESS (ranging from 1% to 22%), depending on the engine capacity, fuel type and vehicle type/size. The new announcement eliminates CESS for all categories except for luxury imported cars, reducing the overall tax applicable to the car. These changes are expected to lower on-road prices and have a positive impact on other related costs, such as car insurance, maintenance, and EMIs. This makes owning a car much more affordable and accessible to all.

Old vs New Structure for GST on Cars

Here is a side-by-side comparison of the old tax structure to demonstrate the reduction in the amount of taxes payable with new car purchases after September 22, 2025. This will help you make an informed decision and buy the car of your dreams.

Note: These rates are based on the 56th GST Council Meeting announcement and are subject to change over time. Please visit the official GST Council website for the latest updates. The symbol ~ denotes approximate value.

New Car GST Rates of Your Favourite Ca​r Brands

Below is a chart comparing top car brands and their popular model prices before the GST implication and with tax reduction, highlighting the difference in the prices.

Note: The prices provided are approximates(~). These prices are subject to change with time and are effective only as of September 2025. Please visit the official websites of the respective car brands for accurate price-related information.

Impact of GST Rate Cuts in Indian Metros

Delhi NCR

Road Tax Slabs:

• Up to ₹6 lakh: 4% of the car price

• ₹6–₹10 lakh: 7% of the car price

• Above ₹10 lakh: 10% of the car price

Example:

Savings: ₹3,830

Insurance Tip: Use the savings to upgrade your policy with Zero Depreciation or Tyre Protection add-ons through the Reliance General Insurance website or app.

Mumbai (Maharashtra)

Road Tax Slabs:

• Below ₹10 lakh: 11% of the car price

• ₹10–₹20 lakh: 12% of the car price

• Above ₹20 lakh: 13% of the car price

Example:

Savings: ₹6,000

Insurance Tip: Reinvest in NCB Protection or Return to Invoice Cover for extra claim security.

Bengaluru (Karnataka)

Road Tax Slabs:

• Below ₹5 lakhs: 13% of the car price

• ₹5 - ₹10 lakh: 14% of the car price

• ₹10–₹20 lakh: 17% of the car price

• Above ₹20 lakh: 20% of the car price

Example:

Savings: ₹8,500

Insurance Tip: Bengaluru's roads and floods call for Engine Protection and Roadside Assistance; use tax savings to opt in.

Kolkata (West Bengal)

Road Tax Slabs:

• Up to 900cc: 10% of the car price or ₹40,000, whichever is higher

• 900 cc - 1490cc: 10% of the car price or ₹55,000, whichever is higher

• 1490 cc - 2000cc: 10% of the car price or ₹80,000, whichever is higher

• More than 2000 cc: 10% of the car price or ₹1,00,000, whichever is higher

Example:

Savings: ₹5,000

Insurance Tip: Add Consumables Cover or Passenger Cover to your plan with the saved amount.

Chennai (Tamil Nadu)

Road Tax Slabs:

• Up to ₹5 lakhs: 12% of the car price

• ₹5 - ₹10 lakhs: 13% of the car price

• ₹10–₹20 lakh: 18% of the car price

• More than ₹20 lakhs: 20% of the car price

Example:

Savings: ₹9,000

Insurance Tip: Opt for Return to Invoice and Key Replacement Cover for added protection.

Hyderabad (Telangana)

Road Tax Slabs:

• Up to ₹5 lakhs: 13% of the car price

• ₹5 - ₹10 lakhs: 14% of the car price

• ₹10–₹20 lakh: 18% of the car price

• ₹20 lakhs - ₹50 lakhs: 20% of the car price

• Above ₹50 lakhs: 21% of the car price

Example:

Savings: ₹6,000

Insurance Tip: Add Pay As You Drive or NCB Retention, especially beneficial if your usage is low.

Note: The prices displayed are only for illustrative purposes. The actual price and applicable taxes may vary depending on the type of vehicle, make and model of the car and other factors.

GST Rate Cut and Car Insurance Premiums: Before vs Now

The recent GST rate cut on cars in India not only lowers the upfront cost of buying a vehicle but also positively influences the cost of car insurance premiums. This is because insurance premiums are calculated based on the Insured Declared Value (IDV) of the car, which correlates closely with the vehicle's market price. When the GST cut reduces the overall car price, the IDV decreases, resulting in lower insurance premiums.

Here is a simple illustration explaining insurance prices before and after the new GST on cars and reduced taxes after September 22, 2025.

Note: These figures are illustrative averages. Actual insurance premiums depend on multiple factors like the choice of insurance policy, policy terms and car model and specifications.

You can use our car insurance premium calculator to get an estimate based on your car's make and model, age and policy type in an instant.

Impact on Insurance Explained with Example

Assume that Rhea from Bangalore, Karnataka, has planned to buy the Hyundai Creta (1.5L Petrol) after September 22, 2025. The current price of the car is ₹11,10,900*, with 28% GST + 17% Cess.

But according to new GST rates, the same car will be available at ₹10,72,600*, helping her save around ₹38,300 during car purchase.

It also affects her car insurance premium, let's see how:

Insurance premiums are based on the Insured Declared Value (IDV), which is aligned with the car's market value. With the GST cut, Rhea's Creta now costs about ₹10,72,600 lakh. The calculation based on her IDV for our comprehensive car insurance will look like:

Note: This is an illustrative example, with current approximate car and insurance prices. You can contact us with your car model specifications and IDV for an accurate estimate.

Insurance Tips to Make the Most of the New Tax Rates

Since the car prices will now be lowered, buying cars will help you secure even better protection for your car. Here is how you can make the most of your Reliance Car Insurance plans:

• Buy New? Start with Updated IDV: If you're purchasing a car after September 22, 2025, ensure the premium is calculated based on the correct post-GST price as your IDV. This keeps your premium accurate and fair.

• Use Savings for Better Protection: The lower car price means a lower premium. Reinvest this in comprehensive coverage with key add-ons.

• Upgrade to Zero Depreciation: Minimise out-of-pocket costs even further during claims by opting for our nil depreciation car insurance plan.

• Choose Useful Add-ons: With our 13+ add-ons* like Engine Protect, NCB Retention and Tyre Protect, you can customise your policy without breaking your budget.

• Go PAYD (Pay As You Drive): If you're a low-mileage driver, our Pay-As-You-Drive car insurance can help you save more every year.

• Quick Renewals & Claims: Enjoy our seamless and all-digital claim service and fast online renewals through our Self-i app within 7 days*.

Key Takeaways

The 2025 revision of GST on cars has significantly reduced the cost of purchasing cars across segments. For small and mid-sized vehicles, the tax rate dropped from nearly 29–43% to 18–22%, bringing down on-road prices by ₹50,000–₹2.5 lakh in many cases. This reduction has a cascading benefit, lowering the Insured Declared Value (IDV), which in turn slightly reduces your car insurance premium.

This is the perfect time for car owners and buyers to reassess their insurance strategy. At Reliance General Insurance, policyholders can use this window to optimise their coverage: upgrade to comprehensive plans, opt for zero depreciation or explore 13 smart add-ons + 3 EV add-ons*, like Engine Protect, NCB Retention and PAYD, all while keeping premiums within budget thanks to the reduced IDV.

In addition, our fast digital processes, 99.57% claims settled*, and the convenience of app-based renewals make it easier than ever to adapt to the new tax rules. With the right insurance moves, you're not just saving on your car, you're investing in long-term protection without overspending.

Frequently Asked Questions

Is GST included in the ex-showroom price of a car?

Yes, GST is included in the ex-showroom price of a car. When you see the listed ex-showroom price on a brand's website or at a dealership, it already accounts for:

• Base price of the vehicle

• Central GST (CGST) + State GST (SGST)

• Compensation Cess (if applicable, depending on vehicle category

What it doesn't include are RTO charges, road tax, insurance, handling fees, and other local levies, which are added separately to arrive at the on-road price.

So, when the GST is reduced (as per the 2025 announcement), the ex-showroom price automatically drops, bringing down your overall purchase cost.

Which cars have 40% GST?

Cars that previously attracted around 40% GST (including Cess) fall into the luxury or large SUV segment. These typically include:

• Engine capacity over 1500 cc

• Length over 4 meters

• Higher ground clearance (classified as SUVs)

• Premium or imported vehicles

For example: Toyota Fortuner, Mahindra Alturas G4, Skoda Kodiaq or high-end cars like BMW or Mercedes.

Is there GST on cars below ₹10 lakhs?

Yes, all cars in India are subject to GST, regardless of price. However, the rate varies based on the type and size of the car. For cars under ₹10 lakh (typically small or compact vehicles):

• Engine capacity ≤ 1200cc (petrol) / ≤ 1500cc (diesel)

• Length ≤ 4 meters

Pre-GST Cut: These cars attracted 28% GST + 1–3% Cess

Post-GST Cut (2025): The total rate has been reduced to 18%, making compact and small cars more affordable than before. These include TATA Punch, Nexon, Hyundai i10, etc.

What is the percentage of car insurance GST?

Car insurance premiums, including comprehensive and third-party policies, attract 18% GST.

This rate has not been changed under the 2025 GST revisions. The GST cut is applicable only on the vehicle purchase (ex-showroom price), not on insurance services.

However, since car insurance premiums (especially the OD component) are based on the Insured Declared Value (IDV), which mirrors the market value of your car, the premium slightly reduces as the car's ex-showroom price drops.

When do the new GST car prices start?

The new GST on cars came into effect from September 22, 2025, as per the announcement made in September 2025 by the GST Council and the Ministry of Finance.

All cars purchased on or after September 22, 2025, will be billed with the revised GST rates, and you can expect lower ex-showroom and on-road prices accordingly.

If you're planning to buy a car this festive season, these new rates will benefit your purchase and double the fun.

Will on-road prices fall by the same amount as ex-showroom?

Not exactly. While a reduction in GST lowers the ex-showroom price of a car, the on-road price (what you actually pay) includes several additional components like road tax, insurance, registration, and handling charges.

However, here's the good news: since both road tax and insurance premiums are calculated as a percentage of the ex-showroom price, any drop in that base price also brings proportional savings across these components.

For example, if a car's ex-showroom price drops by ₹40,000 after the GST cut:

• Road tax (say 10%) will be reduced by ₹4,000

• Insurance premium (based on IDV) may be reduced by another ₹2,000–₹3,000

So, your total on-road savings could be ₹46,000–₹48,000 or more.