Buying a variety of cars is a crucial decision and meant for finances, hence knowing how taxes like GST and other charges affect the price is super important. As of 2025, there have been big changes in the Goods and Services Tax (GST) on cars in India. These are changes that could affect the upfront price to an extent that may even affect your car loan and EMI. This article will throw light on what GST on cars means in the present day and how it relates to car loans to ease the planning of your next car purchase.
What Is GST on Cars?
GST stands for Goods and Services Tax. It is thus charged when you purchase a car. It replaced myriad old taxes like excise duty and VAT, which, depending on one’s understanding, made things easy or difficult on pricing. But unlike other goods, cars do not pay a uniform GST rate. The type of tax paid depends on:
Engine capacity (in cubic centimeters, cc)
Length of the car
Fuel type (petrol, diesel, electric, CNG)
Whether it is a hybrid car or a fully electric one
New GST Rates on Cars From September 2025
Recently the GST Council introduced a new rate structure for cars, one that is simple. Here’s a quick glance at the revised GST rates applicable from late 2025:
| Car Type | GST Rate |
| Small Petrol, Petrol Hybrid, LPG, CNG Cars (≤ 1200 cc & ≤ 4000 mm) | 18% |
| Small Diesel & Diesel Hybrid Cars (≤ 1500 cc & ≤ 4000 mm) | 18% |
| Large Cars, Luxury Cars, Larger Hybrids (engine/length above small-car limits) | 40% |
| All Electric Vehicles (EVs) | 5% |
It implies that small car purchases have just become cheaper due to a drop in GST from 28% to 18%. For luxury and bigger cars, it’s 40% GST, thus removing the extra cess and sometimes making the overall tax burden less despite the higher GST rate.
How GST Or Prices Of Cars Interfere
The Goods and Services Tax on cars is charged over and above its basic price ex-showroom price, so a lower rate of this tax could lead to a lower upfront cost for getting the car.
If for example, a vehicle-class small petrol car is priced at Rs. 6,00,000 before tax, then GST at 18% will be Rs. 1,08,000. At the earlier rate of GST of 28%, it would have been Rs. 1,68,000-which is a Saving. This makes owning smaller cars much more affordable.
Luxury car and big SUVs attract 40% GST but without any additional cess, thereby simplifying the costs.
What About Electric Vehicles?
Electric cars enjoy a special low-rate 5% GST. This leads towards promoting cleaner, greener vehicles in India, making EVs a financially viable option in a long-term scenario.
Why Do They Matter when It Comes to Car Loans?
Generally, when you apply for a car loan, your loan amount depends on the on-road price of the car, which includes ex-showroom price, GST, road tax, insurance of the car, and registration fees.
Reduced GST means reduced ex-showroom price.
This results in the decrease in on-road price as several charges like road tax and insurance are calculated at percentages of ex-showroom prices.
With reduction in on-road price, the amount that requires to be taken as loan comes down.
With lesser loan, the Equated Monthly Installments (EMI) are far lesser.
Hence, the revised GST on cars makes owning a car officially cheaper by bringing down both the price and the monthly loan installments.
Other Expenses Related to Buying a Car
GST might affect the price of the vehicle, but remember that registration fees, road tax, and insurance are still a part of the on-road costs, though they mostly become cheaper when GST goes down.
Even when it comes to car insurance, there is 18% GST on the premium amount, so a lower price of the car also brings down the insurance premiums and saves you money for the long run.
Why paying attention to GST matters when purchasing a car
Knowing the GST rate for cars allows you to:
Compare car prices and bank on the lowest price
Calculate your overall budget while arraying for taxes and various fees
Work out your car loan with clear EMIs and loan amounts
Select between different engine sizes and types of technology (petrol, diesel, hybrid, or EV) on grounds of tax benefits
Quick Tips for Buying a Car with GST and a Car Loan in Mind
Before you pick your car model, check out any current GST rates.
Try to go for smaller-engine cars to pay lower GST and get cheaper finance.
Electric cars offer huge tax incentives and are relatively cheaper to maintain.
Calculate desired EMI amounts with online EMI calculators considering the on-road price including GST.
Compare rates of interest and terms of car loans from various lenders.
Take insurance and registration charges into account in your overall budget.
Final Thoughts
The 2025 GST changes were able to bring down the negativity of the high GST rate of 28% imposed on most smaller petrol and diesel cars to 18%, hence making cars cheaper to own. For the luxurious ones, a simpler 40% GST rate has come into place, without extra cesses causing confusion.
If you are planning to buy a car this year, knowing about GST on cars and its interaction with your car loan will help you make the right financial decisions. Ideally, the lower GST rates translate to lower finance amounts, smaller EMIs, and inexpensive insurance — making the realization of car ownership much closer.
It’s going to help a great deal in making your purchase smooth and affordable if you stay updated on the GST on cars and car loans, irrespective of whether you plan to buy your very first car or upgrade onto a better one.