The latest GST reforms from the 56th Council meeting in September 2025 have turned automobile taxation on its head and in the best way possible. Until recently, car prices felt like a puzzle. There was the base GST, then a compensation cess that varied with size, engine capacity, and even fuel type. The result? No simple answer to “how much tax will this car attract?”
That confusion is now history. The Council has cut through the layers of compensation cess. Every passenger car, including SUVs are taxed at just 18% or 40% GST, while electric vehicles keep their concessional 5% rate. Fewer slabs, simpler maths, clearer car prices
Key Takeaways
- Cars and SUVs now attract only 18% or 40% GST, depending on their size and engine, with compensation cess fully abolished.
- Small cars (petrol ≤ 1200cc/diesel ≤ 1500cc, and length ≤ 4000mm), including compact SUVs and hybrids within limits, are taxed at 18%.
- All larger/higher-end cars and SUVs, including most full-size SUVs are taxed at 40% GST.
- Electric vehicles stay at a concessional GST rate of 5%.
- The changes bring major price reductions for small and compact cars while consolidating taxes on luxury vehicles.
A sport utility vehicle (SUV) is a type of car that combines certain features of passenger cars with features from off-road vehicles. For instance, a raised ground clearance or a four-wheel drive. There are various types of SUV cars in India, ranging from compact models to full-size luxury ones with seven seats. Whether it’s a compact SUV zipping through city traffic or a larger SUV cruising on highways, the category covers multiple segments, and now each has a clear GST treatment.
SUVs in India fall into several categories based on their size, engine capacity, and features. These differences directly affect the GST rate applicable to them:
SUV Category | Engine Capacity & Length | GST Rate |
Compact SUVs | Petrol ≤ 1200cc, Diesel ≤ 1500cc, Length ≤ 4000 mm | 18% |
Mid-Size / Large SUVs | Exceeding above engine or length limits | 40% |
Electric SUVs | Any engine type or length (fully electric) | 5% |
Note: Specification of the car (engine size, fuel type, length) is determined in line with the Motor Vehicles Act, 1988 and corresponding rules.
Perhaps the most overlooked but powerful change is the abolition of compensation cess. Earlier, car prices were stretched with a base GST of 28% plus a cess that could run as high as 22% that varied based on whether the car was a small, mid-sized, or luxury vehicle, as well as its engine type and length. Larger SUVs often ended up with combined rates around 50%, a nightmare for affordability.
Now, compensation cess is gone for good. Two slabs, 18% or 40%, and nothing else. It brings relief, transparency, and most importantly, predictability in vehicle pricing.