Diwali Bonanza: Cars and Bikes to Get Cheaper as GST Rates Slashed – Know How Much You Save

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Thu Sep 04 09:56:06 IST 2025
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New Delhi, Sept 4, 2025 – This Diwali season is set to bring cheer to car and bike buyers as the government has announced major changes in GST rates. Effective from September 22, 2025, small cars and bikes with engines under 350cc will see GST rates reduced from 28% to 18%, making them significantly more affordable. Meanwhile, larger vehicles and high-capacity motorcycles will now attract a flat 40% GST

, while all electric vehicles remain in the 5% bracket.

What Counts as a Small Car?

According to GST rules, a small car is defined as:

  • Petrol engine capacity up to 1200cc, or diesel engine up to 1500cc

  • Length not exceeding 4000 mm

These cars, which earlier attracted 28% GST plus an additional cess, will now fall under the 18% slab. This means popular models like Maruti Alto, Hyundai i10, and similar compact hatchbacks will get cheaper.

Other vehicles, including ambulances and three-wheelers

, will also benefit from the rate cut, moving down from 28% to 18% GST.

Bigger Cars Get a Flat 40% GST

Vehicles that do not qualify as small cars will now be taxed at a flat 40% GST. While the number looks higher at first glance, the overall impact is less severe than before.

Earlier, bigger cars and SUVs like Mahindra Thar, Tata Safari, and premium sedans faced 28% GST plus up to 22% cess

, taking the total tax burden close to 50%. With the new structure, the rate is simplified at 40%, meaning prices of larger cars may actually stabilize instead of rising.

Bigger Bikes to Get Costlier

For motorcycles, the government has drawn the line at 350cc engine capacity.

  • Bikes below 350cc (commuter motorcycles and budget-friendly models) will now attract only 18% GST, down from 28%.

  • Bikes above 350cc, including Royal Enfield models, premium cruisers, and superbikes, will now be taxed at 40% flat.

Earlier, these bigger bikes were taxed at 28% GST plus 3–5% cess, roughly 32% total. The new flat 40% rate means premium bikes will become more expensive.

Before vs After: Tax Impact on Cars

  • Petrol cars up to 1200cc (small cars):

    • Earlier: 28% GST + 1% cess = 29%

    • Now: 18% GST only

    • Example: A car priced at ₹10 lakh (with old 29% tax) will now cost ₹9.14 lakh, saving buyers about ₹85,000.

  • Diesel cars up to 1500cc:

    • Earlier: 28% GST + 3% cess = 31%

    • Now: 18% GST only

    • Example: A diesel car costing ₹15 lakh earlier will now cost ₹13.50 lakh, giving buyers savings of nearly ₹1.5 lakh (10%).

EVs Remain the Biggest Winners

The government has kept electric vehicles (EVs)

under the 5% GST bracket, the lowest in the auto industry. This is expected to encourage more adoption of EVs in the passenger and two-wheeler segments.

Industry and Consumer Impact

  • Consumers will enjoy significant savings on small cars and bikes.

  • SUVs and premium bikes may see price hikes, especially in the above-350cc motorcycle segment.

  • Automakers expect a boost in demand for entry-level cars and commuter bikes during the festive season, thanks to the lower tax burden.

  • The government, on the other hand, is balancing revenue collection with efforts to make affordable mobility accessible to the masses.

Bottom Line

The GST council’s new rate structure, kicking in from September 22, is set to shake up India’s auto market. For millions of middle-class buyers, this Diwali could be the perfect time to book a small car or a budget motorcycle, as tax cuts bring much-needed relief. On the flip side, enthusiasts eyeing big bikes or premium SUVs may need to stretch their budgets.

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