The Indian auto market is awaiting a major change just in time for the festive season of Diwali 2025. From September 22, 2025, the GST Council’s “GST 2.0 reform” will take effect, streamlining auto taxation into three major slabs: 18% for compact cars, 40% for larger cars (including compact and full-size SUVs), and 5% for electric vehicles.
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Cess Out, Clarity In: Transparent GST Rates To Bring Prices Down
Under the new regime, small passenger cars, especially those with petrol engines under 1200 cc and diesel engines under 1500 cc, with lengths of up to 4 meters, will attract a flat 18% GST, down from the prior effective rate of around 29-31% (including cess). Mid-size and large cars, including utility vehicles and SUVs that exceed these size and engine specifications, will now attract a flat tax of 40%, replacing the previous slab ranging from 45% to 50%.
These revisions simplify a complex tax structure, eliminate the additional cess layers, and enhance the input tax credit (ITC) eligibility, making car prices more transparent and potentially lower. For our readers, especially those who’re eyeing the entry-level hatchbacks like the Maruti Swift, WagonR, or the Baleno, the change in the GST rate could result in a significant reduction in the ex-showroom price, and therefore, the road taxes and the subsequent costs that make up for the on-road price of a vehicle.
Old GST Rates vs. New GST Rates
| Category | Old rate | New rate | Effective Reduction | Example Models |
| Up to 4m, 1200cc petrol | 29% | 18% | 11% | Maruti WagonR 1.0/1.2, Hyundai Grand i10 Nios 1.2 |
| Up to 4m, 1500cc diesel | 31% | 18% | 13% | Tata Altroz Diesel, Hyundai i20 Diesel |
| 1201–1500cc engines | 45% | 40% | 5% | Honda City 1.5, VW Virtus 1.5 NA |
| 1500cc+ engines | 48% | 40% | 8% | Skoda Superb 2.0, Toyota Camry 2.5 |
| 4m+, (170mm GC+), 1500cc+ | 50% | 40% | 10% | Mahindra Scorpio‑N, Toyota Fortuner |
| EVs | 5% | 5% | – | Tata Nexon EV, MG ZS EV |
Also Read: We Added a Fuel Additive to E20 Petrol. Here’s What Happened
Crunching the Numbers: How GST Rate Cuts Reshape Car Prices
Methodology
To put the GST reform and its impact on car prices in perspective, I’ve broken down how the new tax structure might impact the ex-showroom prices of the top-selling cars in July 2025.
- The methodology is rather simple: starting with the current ex-showroom price of the base variants, we calculated the base price (pre-GST value), and then applied the revised GST rate applicable to the car (and the category it belongs to).
- In the process, we’ve attempted to determine the total tax that a buyer paid as part of the outgoing GST and cess rates, as well as the flat GST rate that one would have to pay under the upcoming GST rates.
Why does this matter? Well, the ex-showroom price is the foundation for all on-road costs, which include the road tax and insurance components.
Impact
A lower ex-showroom price, therefore, should result in a lower sticker price, reduced road tax, and lower hefty insurance premiums that customers have to bear. Moreover, the government’s GST reform initiative could, in a very real way, significantly reduce car ownership costs. The results are particularly striking for compact SUVs and mid-sized SUVs, where cess has historically kept prices higher.
However, you can also see some noticeable differences in the ex-showroom prices of small vehicles. The breakdown given below comprises the car’s ex-showroom price (for its base petrol model), the current GST and cess rates, the tax that buyers pay on it, the new GST rate applicable to the vehicle, the adjusted GST, and finally, the reduced ex-showroom price.
Although the calculation isn’t as straightforward as shown here, it provides a good idea of how car pricing works and the impact of the revised GST rates.
| Current Starting Price (Ex-Showroom) | Current GST Rate | Included Tax | New GST Rate | Revised GST | Adjusted Price (Ex-Showroom) | Difference | |
| Maruti Dzire | Rs. 6,84,207 | 28% GST + 1% cess | Rs. 1,53,812 | 18% | Rs. 95,471 | Rs. 6,25,864 | Rs. 58,343 |
| Hyundai Creta | Rs. 11,10,900 | 28% GST + 22% cess | Rs. 3,70,300 | 40% | Rs. 2,96,240 | Rs. 10,36,840 | Rs. 74,060 |
| Maruti Ertiga | Rs.9,11,500 | 28% GST + 17% cess | Rs. 2,82,793 | 40% | Rs. 2,51,483 | Rs. 8,80,190 | Rs. 31,310 |
| Maruti WagonR | Rs. 5.78,500 | 28% GST + 1% cess | Rs. 1,30,000 | 18% | Rs. 80,712 | Rs. 5,29,100 | Rs. 49,400 |
| Maruti Swift | Rs. 6,49,000 | 28% GST + 1% cess | Rs. 1,42,000 | 18% | Rs. 91,260 | Rs. 5,98,000 | Rs. 51,000 |
| Maruti Brezza | Rs. 8,69,000 | 28% GST + 17% cess | Rs. 2,69,690 | 40% | Rs. 2,39,724 | Rs. 8,39,034 | Rs. 29,900 |
| Mahindra Scorpio | Rs. 13,76,600 | 28% GST + 22% cess | Rs. 4,58,867 | 40% | Rs. 3,67,093 | Rs. 12,84,826 | Rs. 91,774 |
| Maruti Fronx | Rs. 7,58,500 | 28% GST + 1% cess | Rs. 1,70,516 | 18% | Rs. 1,05,837 | Rs. 6,93,822 | Rs. 64,678 |
| Tata Nexon | Rs. 7,99,990 | 28% GST + 1% cess | Rs. 1,79,842 | 18% | Rs. 1,11,627 | Rs. 7,31,775 | Rs. 68,215 |
| Maruti Baleno | Rs. 6,74,000 | 28% GST + 1% cess | Rs. 1,51,519 | 18% | Rs. 94,047 | Rs. 6,16,527 | Rs. 57,473 |
The Road Ahead: Winners and Losers in India’s Car Market
The revised GST slabs mark one of the most significant economic reforms for India’s auto sector in recent years. Moreover, this improves affordability for first-time buyers, who often have a limited budget and rely on financing options to purchase their “dream car.” Ultimately, the changes can also give the struggling Indian auto market room to breathe a sigh of relief and sell some of the standing inventory.
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