These Cars Will Still Be Taxed With 40 Percent GST

While the new GST announcement brings relief for small car buyers, it spells a bit of good news for large cars buyers who will now have to pay about 10 percent less tax

Any vehicle with a petrol engine exceeding 1,200 cc, a diesel engine over 1,500 cc, or a length greater than 4,000 mm will be subject to this new tax bracket.

Which cars face the 40% GST rate?
Mid-size and large cars exceeding either 1500 cc engine capacity (or 1200 cc for petrol/CNG/LPG) or 4000 mm in length are taxed at 40% from previous 50 percent. Additionally, utility vehicles (SUVs, MUVs, MPVs, XUVs) with engine capacity greater than 1500 cc, length greater than 4000 mm, and ground clearance equal to or greater than 170 mm also attract 40%. Examples include Hyundai Creta (1497 cc, 4300 mm) and Toyota Fortuner (2755 cc, 4795 mm, 225 mm clearance).

1. What are the new GST rates for small cars, and which vehicles qualify?
   Small cars with petrol, LPG, or CNG engines up to 1200 cc and diesel engines up to 1500 cc, with a length not exceeding 4000 mm, attract a reduced GST rate of 18% (down from 28%). Both criteria (engine capacity and length) must be met. Examples include the Maruti Suzuki Swift (1197 cc, 3845 mm) and Mahindra Thar RWD Diesel base variant (1497 cc, 3985 mm).

2. Do vehicles need to meet all criteria to qualify for the 40% GST rate?
   No, for mid-size/large cars, exceeding just one criterion (engine greater than 1500 cc or length greater than 4000 mm) triggers the 40% rate. For utility vehicles, all three conditions (engine greater than 1500 cc, length greater than 4000 mm, and ground clearance equal to or greater than 170 mm) must be met. For example, a Honda City (1498 cc, 4574 mm) qualifies due to length alone, while a Mahindra Thar 4x4 Diesel (2184 cc, 3985 mm) qualifies due to engine size.

3. How does the GST rate change affect pricing in Delhi NCR?
   For small cars like the Tata Punch (1199 cc, 3827 mm), the GST drop from 28% to 18% reduces ex-showroom prices by approximately 8-10% (e.g., approximately ₹6.20 lakh to approximately ₹5.72 lakh). For mid-size/large cars like the Kia Seltos (1497 cc, 4315 mm), the decrease from 50 percent to 40%  by approximately 10-12% 

4. What happens to vehicles supplied before September 22, 2025, but invoiced later?
   Per Section 14 of the CGST Act, 2017, if goods are supplied before the rate change but invoiced after, the GST rate depends on payment timing. If payment is received post-September 22, the new rate (18% or 40%) applies based on the earlier of payment or invoice date. If payment is pre-September 22, the old rate (28% plus cess) applies.

5. Can input tax credit (ITC) from higher rates be used after the rate change?
   Yes, ITC already in the e-credit ledger from purchases at the old higher rate (28% plus cess) can be used to offset output tax liabilities for supplies on or after September 22, 2025, per Section 49(4) of the CGST Act. For example, a dealer with ITC from a pre-rate change Hyundai i20 purchase can use it for post-rate change sales.

6. What is the GST rate for three-wheelers and buses?
   Three-wheelers (HSN 8703) and motor vehicles designed to carry 10 or more persons, including buses (HSN 8702), now attract 18% GST, reduced from 28%. This includes auto-rickshaws and public transport buses, making them more affordable.