One year ago, in September 2025, India rewrote how cars are taxed. The GST 2.0 reform replaced the old maze of cess-on-top-of-tax with a cleaner structure: 18 percent on small cars, 40 percent on bigger ones, and 5 percent on electric vehicles. Small cars became cheaper overnight, some by more than a lakh, and showrooms had their best festive season in years. Twelve months on, this is an honest audit of what stuck, what got absorbed, and what it means for a buyer walking in today.
What GST 2.0 changed, in one table
| Category | Old regime | Since Sept 2025 |
|---|---|---|
| Small cars (sub-4m, small engines) | 28% GST plus cess | 18% |
| Larger cars and SUVs | 28% plus higher cess slabs | 40% flat |
| Electric vehicles | 5% | 5%, unchanged |
The biggest winners were hatchbacks, compact sedans and sub-4-metre SUVs with small engines, exactly the cars most Indians buy. Kia’s Sonet and Syros class of car saw some of the segment’s largest benefit, with savings that ran past Rs 2 lakh on certain models.
What actually happened to prices over the year
The cuts were real and mostly passed on in autumn 2025. Then physics resumed. Input costs, new variants and feature additions have been quietly clawing prices back up through 2026: the industry-wide hikes of one to two percent in July, and moves like Tata’s up-to-Rs 25,000 increase this September, have eaten a slice of the GST benefit. The net position a year later: small cars remain meaningfully cheaper than they would have been under the old regime, but the launch-week euphoria pricing is gone. Anyone comparing today’s price to September 2025’s introductory price and feeling cheated is comparing against the one week prices will never return to.
The 40 percent slab reshaped the top end too
Bigger SUVs landed on a flat 40 percent, which simplified the old cess ladder and, for some models, actually reduced total tax. It also sharpened the line at 4 metres and small engine capacities. That line now visibly shapes product planning: the flood of sub-4-metre launches, small-displacement turbo engines and the positioning of cars like the new Hyundai Bayon in October’s launch list all trace back to where the tax boundary sits.
The EV angle nobody should miss
EVs kept their 5 percent rate, which means the gap between an EV and its petrol twin narrowed less than headlines suggested, since petrol small cars got cheaper too. Even so, 5 percent versus 18 or 40 remains the single biggest structural subsidy in Indian motoring, and it is a large part of why the budget EV segment and the Rs 15 to 25 lakh EV bracket look as strong as they do this festive season.
What this means for your purchase this festive season
- Small-car buyers: you are still structurally ahead. Negotiate on today’s price, not against last year’s launch offers.
- Big-SUV buyers: the 40 percent slab is baked in. Festive discounts, covered in our discount guide, matter more than tax hopes.
- EV buyers: the 5 percent rate plus state road-tax waivers remain your quiet advantage. Stack them with festive offers.
FAQ: GST on cars in 2026
What is the GST rate on cars in India now?
Since September 2025: 18 percent on qualifying small cars, 40 percent on larger vehicles, and 5 percent on electric vehicles.
Did car prices really come down after GST 2.0?
Yes, small cars dropped meaningfully in late 2025. Through 2026, routine input-cost hikes have taken back a slice, but prices remain below what the old tax structure would have produced.
Are EVs still taxed at 5 percent?
Yes, the 5 percent EV rate carried through the reform unchanged and remains the lowest slab in the system.