The government’s proposed overhaul of the Goods and Services Tax (GST) regime could bring welcome relief for buyers of smaller cars by creating separate tax bands for small and large vehicles. Under the plan, small cars — which today attract 28% GST plus a modest cess of 1–3% — are likely to be shifted into the 18% bracket, government sources said.
At the same time, bigger and luxury cars, including many SUVs, are expected to be moved into a special high-rate category of around 40% after the 28% slab is removed. Officials indicated that the 40% slab will be tightly targeted: “Small cars are not luxury items or demerit goods. Only 5–7 items are going to be retained in the 40% slab,” a government source said.
If implemented, the changes would narrow the tax burden between entry-level and premium vehicles, lowering effective tax rates for mainstream small-car buyers while preserving steep taxation on a small set of luxury items. The final structure and exact cess levels will depend on detailed policy decisions and notifications from the government.
