Quick Summary
In a move that could significantly impact car prices and boost consumer demand, the government is planning sweeping reforms to the GST regime for automobiles. According to government sources, the restructuring is aimed at resolving long-standing disputes related to engine capacity and vehicle size, while also making vehicles more affordable for the common man. At present, automobiles attract GST at 28% - the highest tax slab. with an additional compensation cess ranging from 1 to 22% depending
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FAQ :
Currently, automobiles attract GST at 28%, with an additional compensation cess ranging from 1% to 22%, bringing the total tax incidence between 29% and 50%.
The government is proposing to replace the current four-slab GST structure (5%, 12%, 18%, 28%) with a simplified two-slab system of 5% and 18%.
The reforms aim to resolve disputes related to engine capacity and vehicle size, simplify the tax structure, and make vehicles more affordable for consumers.
The proposal will be taken up by the Group of Ministers (GoM) on GST rate rationalisation on August 21, 2025.
Electric vehicles currently enjoy a concessional GST rate of 5%.
Experts believe a reduction in the effective GST rate will make cars more affordable, boosting demand and sales, and providing a much-needed boost to the sector.
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