GST on luxury cars, SUVs now at 40%, but it's still good news for consumers

GST Council announcements: New two-slab GST system cuts tax on smaller cars to 18 per cent, trims luxury cars and SUVs to 40 per cent, making high-end vehicles slightly cheaper

The Goods and Services Tax (GST) Council on Wednesday (September 3) approved a new, simpler two-slab tax system with only 5% and 18% rates.

 

While the council has recommended reduced rates on small cars from 28 per cent to 18 per cent, the luxury cars and SUVs — which earlier faced a GST of 28 per cent — will now come under a new 40 per cent 'sin' tax slab.

 

However, despite the higher slab, these mid-size and large cars are set to become cheaper from September 22.   

 

Luxury cars, SUVs set to become cheaper

 

Currently, mid-size and large cars carry 28 per cent GST plus a compensation cess of 17-22 per cent, making the total tax around 45-50 per cent. Luxury cars (above 1,500 cc) are taxed at 48 per cent (which includes GST and cess), and SUVs (engine over 1,500 cc, length over 4 metres) attract 50 per cent in total taxes.

 

Under the new structure, luxury cars and SUVs will now fall under the 40 per cent GST slab, the highest rate for 'sin' and certain luxury goods. The new rates will exclude compensation cess, reducing the overall cost.

For instance, if a luxury car costs ₹40 lakh before tax, the old structure would have imposed nearly 48 per cent in total taxes (28 per cent GST plus 20 per cent cess), taking the on-road price to about ₹59.2 lakh. Under the new 40 per cent flat GST slab, the same car would cost around ₹56 lakh — a saving of over ₹3 lakh for the buyer.

 

• Luxury cars (above 1,500 cc): 40 per cent GST, no cess

 

• SUVs, MUVs, MPVs, XUVs with engine >1500 cc, length more than 4m, and ground clearance of 170 mm and above: 40 per cent GST, no cess   

 

Big bikes to get costlier

 

Bikes with engines above 350 cc — like Royal Enfield cruisers — will become more expensive. Earlier, they were taxed at 28 per cent GST plus 3-5 per cent cess, totalling about 32 per cent. Under the new system, they will now come under the flat 40 per cent GST slab, with no cess, increasing their overall tax.

 

What are sin goods?

 

'Sin goods' are high-end or unhealthy products considered harmful to health or society. This includes tobacco, gutka, pan masala, alcohol, and sugary drinks. Governments worldwide tax these goods heavily to reduce consumption and generate revenue for public welfare.

 

In India, sin goods previously attracted 28 per cent GST plus an additional compensation cess. With the new GST reform, the cess is merged into a single 40 per cent GST rate.