Small cars & 2-wheelers get cheaper as GST Council approves 2-slab structure

The Goods and Services Tax (GST) Council has approved the two-slab proposal, which will make small cars and two-wheelers more affordable for the masses. The new GST rates will kick in from September 22, 2025, on the auspicious occasion of Navratri. The GST Council meeting was scheduled to take place on September 3-4, 2025, but all agendas were addressed in the meeting held today.

GST Rates Revised To 2 Slabs

The council approved the centre’s proposal for the rationalisation of GST tax slabs into two broad categories. The council has approved the two-slab structure - 5 per cent and 18 per cent. This will make small cars under 1,200 cc and two-wheelers under 350 cc more accessible. The vehicles were previously taxed under the highest slab of 28 per cent. Buses, trucks, and ambulances will also get more affordable with the tax slab revised from 28 to 18 per cent. Moreover, the compensation cess that was previously levied on vehicles will be done away with. There will be a uniform rate of 18 per cent on all auto parts, while three-wheelers have been moved to 18 per cent, from 28 per cent.

On the other hand, luxury cars and two-wheelers will get more expensive and will be taxed at 40 per cent. This includes mid-size and large cars, as well as motorcycles exceeding 350 cc. However, more clarity on how the tax will be levied and how much of the benefits will be passed on to customers needs to be seen.

What's certain is that the rationalisation comes right in time for the festive season, when the purchase sentiment is high in the auto sector. With sales staying sluggish in the last quarter, the reduction should come as a big relief to new vehicle buyers, providing a much-needed boost to the sector at large.

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