GST rate cut on petrol, diesel, LPG and CNG cars: What should car buyers know?

The GST Council has announced a major change in the tax rate on cars, giving relief to buyers of small vehicles.

The tax on all small cars has been reduced from 28% to 18%. This move is expected to make compact cars more affordable for the average consumer while supporting demand in the automobile sector.

The government has set specific conditions. Petrol, LPG, and CNG cars are considered small if their engine capacity does not exceed 1200 cc and their length is up to 4000 mm. For diesel cars, the engine capacity limit is slightly higher at 1500 cc, but the length condition remains the same at 4000 mm. Any car that goes beyond these limits is not treated as a small car and continues to attract the higher 28% tax rate.

What is the new rate?

The new tax rate is the same for petrol, diesel, LPG and CNG cars.

Within the small car category, all fuel types enjoy the reduced GST rate of 18%. The only difference lies in the engine capacity cap. Petrol, LPG, and CNG cars must stay within 1200 cc to qualify, while diesel cars get a slightly higher limit of 1500 cc. So whether you buy a small petrol hatchback or a compact diesel sedan, the tax rate remains the same.

For consumers, this means many popular hatchbacks and entry-level sedans will become cheaper. Families looking for budget-friendly city cars will benefit from this tax cut.

On the other hand, bigger vehicles such as SUVs, luxury sedans, and imported cars will not see any relief. These continue to be taxed at 28% or higher, depending on additional cess and duties.

GST rates for the smaller cars were reduced from 28% to 18% for cars with an engine displacement of 1200 cc and below 4000 mm. Meanwhile, luxury cars or SUVs, which are 1200 cc (petrol) and 1500 cc (diesel), and 4000 mm, will continue to attract a higher GST rate of 40%.