New Delhi: The Government intends to make significant changes to the vehicle tax code. There are currently disagreements regarding the GST (Goods and Services Tax) classification of vehicles according to vehicle type and engine size.
Confusion will be lessened and this classification will be made simpler under the new plan. Automobiles currently fall under the highest GST tax slab in India which is 28%. Additionally a compensation cess that ranges from 1 to 22 percent is applied making the cost of purchasing a car high.
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SUVs may be subject to taxes as high as 50% whereas small gasoline-powered cars may only pay about 29% in total. However taxes on electric vehicles are only 5%. Report claims that the central government is thinking of lowering the GST rates to either one of two slabs primarily 5% and 18%.
Big news for car buyers!
To end confusion in classification, the govt may cut GST on automobiles. Now, hatchbacks could be taxed at just 18% GST! #CarNews #GSTCut #Hatchback #AutomobileIndia #TaxUpdate pic.twitter.com/X7I34SDGfE
— Dynamite News (@DynamiteNews_) August 18, 2025
Additionally a 40% tax on a few chosen products is being proposed. Most cars would fall into the 18% tax slab under this new arrangement. Consequently vehicles that currently pay 28% GST would only pay 18%.
Since hatchbacks and small cars make up the majority of the Indian auto market this change is anticipated to lower car prices and increase sales. The primary objective of this tax reform will be achieved when more people purchase cars due to lower taxes which will increase demand and consumption.
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The current 12 and 28 percent GST slabs will be eliminated according to government plans. The Group of Ministers (GoM) meeting scheduled for August 21 will address this proposal. In order to approve the new tax structure the GST Council—which consists of finance ministers from the federal and state governments—will then convene in September.
By lowering the total cost of cars and streamlining the tax code this amendment if approved will benefit car buyers. Numerous experts think that this reform will significantly boost the auto industry and help lower the cost of cars for the average person.