REVISED GST RATES ON CARS AND ITS IMPACT ON INSURANCE PREMIUMS

In India, owning or driving a car comes along with a wide array of responsibilities, which include well-scheduled maintenance, monitoring fuel expenses, knowledge of traffic rules and regulations, and many more. Among all these responsibilities, making payments of car tax is a mandatory fee that is imposed by state governments to garner earnings for the development and maintenance of roads and infrastructure. 

However, the rates and regulations vary significantly from state to state across the nation. If you are planning to buy a new car or re-used car, then understanding the intricacies of the car tax in India is essential to make strategic finance planning and ensure compliance with the law. Recently in September 2025, the government of India has introduced revised GST rates on cars, which is going to be highly beneficial for vehicle owners across the nation.

 Also, with the help of insurance-providing platforms, like Quickinsure, it becomes easier for buyers and owners to compare GST-inclusive car insurance plans and choose the most affordable option without hassle.

An Overview of GST in India

The Goods and Services Tax has redefined India’s previously complicated system of multiple state and central taxes with a single, unified tax structure. The main aim of implementing GST is to eliminate the issue of “tax in tax” layout and make tax compliance easier for businesses and consumers.

Under GST, goods and services are divided into different tax slabs, including 5%, 12%, 18%, and 28%. There are some essential items that are completely exempt from GST. These GST-free goods are usually basic necessities and are regulated by the respective state governments.

In the automotive sector, GST is set at the highest slab of 28% for vehicles. In addition, there is a 1% cess on two-wheelers and up to 22% cess on passenger and commercial vehicles. However, the cess rate mainly varies depending on the engine size and type of vehicle.

What is the Actual meaning of GST on Cars?

Many of us are aware that various automobiles across India attract a minimum of 28% GST.  But this is partially true. The prime rate of GST on car purchase is identified, based on different factors, such as variants of car, type of fuel used, and its usage, that is why it varies from 28% to 45%.

Revised GST Rates on All Car Categories

Till now, car buyers had to give 28% GST rate along with an extra cess of 1%-22%, which made things very difficult to predict. However, now the government has simplified the vehicle tax structure by eradicating the cess completely and adding the whole new slabs. You can easily compare the previous GST rates and the revised rates with the help of the below table:

 

GST on Luxury Cars in India

The revised GST rates for cars, which is effective from September 2025, have completely shaken up the Indian luxury car market. While mainstream models see minor changes, premium vehicles like the Mercedes-AMG G 63, Maybach GLS 600, and BMW X7 have become notably more affordable, with price drops ranging from ₹1.6 lakh to over ₹25 lakh.

Moreover, previously taxed at up to 50%, the GST on luxury cars made them heavily burdened. Now, under the new structure, vehicles with engines over 1500cc or longer than 4000mm are taxed at a flat 40%, with no extra cess. This simplification has made high-end models more accessible and reshaped the luxury automotive segment in India.

GST on Second-Hand Cars in India

When buying or selling through a registered car dealer, GST on used cars is charged at 18%, but only on the profit margin of the dealer, not the full sale price. For example, if a dealer buys a car for ₹5 lakh and sells it for ₹6 lakh, GST applies only to the ₹1 lakh margin. This keeps the system fair, transparent, and ensures buyers aren’t overburdened. For dealers, this structure makes pricing competitive while staying compliant with tax rules. On the other hand, private sellers face no GST liability. 

Moreover, if you sell your old car directly to another individual, whether to a friend or via online listing, no GST applies, which makes the entire process of selling hassle-free.

Key Advantages of New GST Rates

After the announcement of revised GST rates on cars in India, many buyers across the country are going to be highly benefitted in the following ways:

• Now buyers can opt for small and mid-size cars as they become more cheaper

• The change in GST rates has boosted the sales of cars in the festive season

• The best thing about this transformation is that it contains fewer slabs which make overall system very transparent and system

• Most importantly, as the world is transitioning toward zero-carbon emission, the new GST rates has attracted many EV buyers

Impacts of Revised GST on On-Road Prices and Insurance Premiums in India

GST reforms in India have dramatically influenced the on-road prices of cars, especially following the implementation of the GST 2.0 structure. As of September 2025, small cars are now taxed at a flat 18% GST without any compensation cess, bringing down their on-road prices by around 12–13%, directly benefiting budget-conscious buyers and increasing affordability across the market. 

Moreover, for larger vehicles and SUVs, although a new 40% GST slab (with no cess) has replaced the earlier structure, the elimination of layered cesses and rationalized slabs have made the overall pricing more transparent and in many cases, slightly cheaper.

Let’s understand how GST was calculated previously with an example:

For say, you are planning to purchase a small petrol car which costs INR 6,00,000

GST applied by the government: 28%

Which means, 28% of INR 6,00,000 = INR 1,68,000

Extra cess: 1% of 6,00,000 = INR 6,000

Final price:  INR 1,68,000 + INR 6,000 = INR 1,74,000

However, now, as the inclusion of cess is completely removed, the total price of the vehicle will be: INR 1,68,000, which is significantly lesser than the previously applied GST rates. 

Furthermore, when it comes to car insurance premiums, the impact of GST is equally significant. Previously, GST at a rate of 18% has been levied on car insurance premiums, increasing policy costs compared to the previous service tax of 15%. This rise affected both basic and comprehensive insurance plans, extending to popular add-ons such as zero-dep and engine protection covers, thereby making the renewal and purchase of insurance notably costlier. However, in a recent and substantial policy change, the government has cut down GST on individual insurance, including car insurance premiums to zero starting September 22, 2025. 

This move is expected to reduce insurance outgoings, though actual benefits depend on whether insurers categorize premiums as “nil-rated” or “exempted,” due to input tax credit provisions. So, revised GST resulted with lower on-road prices and zero GST on premiums, which makes buying and maintaining a car substantially more affordable for Indian consumers in 2025.

In a Nutshell 

The revised GST structure has simplified car taxation in India, reduced on-road prices, and even eliminated GST on insurance premiums. It allows buyers across the nation to opt for budget-friendly small cars, hybrid cars, or luxury models with greater affordability and transparency. With these changes, owning, insuring, and maintaining a car in 2025 has become far more cost-effective and consumer-friendly across the country.

If you want to know more about the GST impact on your premiums and choose the best car insurance policy for your vehicle, Quickinsure is just a click away!

FAQs

1. What is the current GST rate on cars in India?

As of September 2025, GST on cars varies by category. Small petrol, diesel, CNG, and LPG cars are taxed at 18%, mid-size cars and SUVs at 40%, EVs at 5%, and hybrids at 40%. Luxury cars now also fall under the 40% slab with no additional cess.

2. How has GST impacted the price of luxury cars in India?

Earlier, luxury cars attracted up to 50% tax (28% GST + 22% cess). With the revised GST, they now fall under a flat 40% rate, reducing prices by ₹1.6 lakh to ₹25 lakh depending on the model, making premium cars more affordable.

3. What is the GST rate on second-hand cars in India?

For second-hand cars sold by dealers, GST is 18%, but only on the profit margin of the dealer, not the full car value. Private sales between individuals are exempt from GST, ensuring hassle-free transactions.

4. How does GST affect car insurance premiums?

Previously, GST on car insurance premiums was 18%, increasing policy costs. However, from September 22, 2025, GST on car insurance premiums has been reduced to zero, making policies more affordable for car owners.

5. Why is understanding GST important when buying a car?

Knowing GST rates helps buyers plan finances better, compare on-road prices, and choose the right insurance policy. It ensures transparency in pricing, avoids overpayment, and allows consumers to take advantage of tax reforms for cost-effective car ownership.

6. What about imported cars?

Imported cars in India must also be registered with the RTO and follow the same licensing and road safety rules as domestic vehicles. They require compliance with Indian emission standards, safety norms, and payment of customs duties before being legally driven on Indian roads.