Car buyers in India have reason to cheer as GST 2.0 ushers in a major tax relief for big petrol and diesel vehicles. Until now, large cars carried an effective tax burden of almost 50%, combining 28% GST with a hefty compensation cess of up to 22%. The government has now simplified the structure to a flat 40% GST with no cess, cutting costs for buyers and making taxation far more transparent.
The new rates will be applicable from September 22, 2025, just ahead of the Diwali festive season—a move expected to trigger strong car sales during India’s peak buying period.
The announcement has already boosted market sentiment. Auto stocks surged as industry leaders hailed the reform as a transformative step that will improve affordability and fuel demand for vehicles.
By removing the cess and consolidating taxes, the government has reduced the load on car buyers. Premium SUVs and luxury cars that earlier attracted close to 50% in taxes will now face a more reasonable 40% GST, translating into lower on-road prices.
Experts believe this rationalisation will not only make big cars more attractive but also spur demand across small and large vehicle segments, giving the automobile industry a festive season boost.
While 40% remains a high tax rate, analysts stress it is a welcome reduction from the previous regime, offering relief to buyers of mid-size and large cars and making ownership a little easier.
