GST Rate Cut For Cars: Cess Removed, All Cars To Get Cheaper

New GST slabs announced, cess scrapped, and festive buyers set to cheer.

A family walking into a showroom during the festive season always looks at the final on-road price before anything else. In September 2025, this calculation changed. With the latest GST Council decision, India’s car market is heading into a new tax regime that could change how people buy cars and bikes.

What Happened In September 2025?

On 3 and 4 September 2025, the 56th GST Council meeting was held in New Delhi. The meeting was important as the Press Information Bureau (PIB) confirmed a major automobile GST policy change. For the first time since GST began in 2017, the compensation cess on vehicles was scrapped.

The Council introduced two main slabs for vehicles. Small cars, bikes up to 350 cc, three-wheelers, trucks, and buses were shifted to the 18 percent GST slab. Bigger cars and SUVs were moved into a 40 percent slab. Electric vehicles remain unchanged at 5 percent GST. The changes will take effect from 22 September 2025, in time for Navratri.

This move simplifies taxes, removes confusion, and helps both manufacturers and customers.

New GST Slabs For Automobiles

Before this reform, vehicle taxes had GST plus a separate cess. That cess blocked input tax credit and raised working capital for manufacturers. For buyers, the final price went up by lakhs. Now, with only slabs and no cess, the path is cleaner.

Old Vs New GST Rates

The table shows a mix. Small buyers win with lower GST. Big cars may look costlier at 40 percent GST, but the actual impact is still a drop because cess is gone.

What Cess Removal Means For Buyers?

Cess was first introduced in 2017. Its role was to compensate states after GST replaced older taxes. It was charged over the base GST rate, which made vehicles expensive.

Now that the cess is gone, manufacturers can claim a full input tax credit. The supply chain is clearer. That means more freedom to pass discounts to customers. For buyers, this means lower car prices and easier price comparisons across models.

Effect Of Cess Removal

This change makes the entire market more transparent. Customers will not face hidden taxes.

Wider Impact Beyond Cars

The GST rate cut does not stop with cars. Two-wheelers, three-wheelers, buses, and trucks are also included. This has wider effects on industries linked to automobiles.

• Tyre makers and auto part suppliers will pay lower taxes on inputs.
   
• Transport companies using buses and trucks will face reduced costs.
   
• Daily essentials and goods will become cheaper as freight charges reduce.

This is expected to improve affordability across the economy, not only for car buyers.

What is a GST Rate Cut?

A GST rate cut means a reduction in the percentage of Goods and Services Tax charged on goods or services. When applied to vehicles, it directly lowers the tax burden on buyers and manufacturers. It changes final consumer prices, credit flow in supply chains, and demand in the market.

How EV Tax Rules Evolved Before the Latest GST Cut?

Earlier in June 2025, there was talk of a new GST cut on electric vehicles. It turns out EVs have been taxed at a flat 5 percent rate since 2019, and that rate remains unchanged today. The new GST reforms in September 2025 went much wider, covering not just electric vehicles, but also petrol, diesel, hybrid cars, two-wheelers, three-wheelers, trucks, and buses. This move shows a shift from targeted green policy to broad-based relief in the auto industry.

For a deeper look at why EVs have always enjoyed the 5 percent GST rate, see this LoansJagat article: [GST on Electric Vehicles – Reduced Rates & Buyer Benefits (July 2025)] 

Learning From Government And Bank Reactions In The Past

The idea of temporary levies and their later removal is not new in India.

• In banking, extra service charges were once added but later withdrawn once revenues stabilised.
   
• In telecom, licence fees were heavy in the beginning. Later, the government restructured the burden for operators.
   
• In automobiles, the compensation cess followed the same route. Added in 2017 as a stopgap, it is now removed in 2025.

This pattern shows how the government uses levies during early years of reform and rolls them back once systems are stable.

Industry Reactions

The automobile industry welcomed the move. Car companies expect higher showroom footfall as the festive season approaches. Banks and finance companies see better chances of loan demand. Stock markets already reacted with rallies in auto stocks like Maruti Suzuki, Mahindra, and Hero MotoCorp.

Experts believe the clean slab system will help dealers close more sales, especially among middle-class families.

Conclusion

The September 2025 GST Council decision marks a turning point for India’s auto sector. By scrapping the cess and cutting rates, the Council created a simpler and cleaner tax path. Cars, bikes, and even trucks are set to become cheaper. Buyers will benefit from lower on-road costs and transparent pricing. Manufacturers get a stronger cash position. The wider economy gains from lower logistics costs.

The removal of cess is more than a tax adjustment. It signals the end of a temporary levy that lasted eight years. For Indian families planning a new car this festive season, the government has cleared the road for affordability.
 

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