The government has rolled out a major GST reform for passenger vehicles, effective September 22, 2025. The move slashes GST rates and removes the compensation cess, making all cars cheaper. While the exact savings will depend on how much benefit manufacturers pass on, sub-4m cars stand to gain the most.
Before and After: Tax Changes Explained
Until now, car buyers paid 28% GST plus a cess on the ex-showroom price. For petrol, CNG, and LPG cars under 4m with engines up to 1200cc, the total tax was 29%. For diesel cars under 4m with engines up to 1500cc, it was 31%.
Under the new regime, GST has been cut to 18%, and the cess is removed entirely. This means:
- Petrol/CNG/LPG sub-4m cars save 11%
- Diesel sub-4m cars save 13%
Larger cars and SUVs, including models with 1.5-litre engines, will also see reduced tax rates — for example, the Maruti Brezza now falls from 45% to 40%.
Impact on Car Prices
Popular hatchbacks like the Tata Tiago, Maruti Swift, and Hyundai i20, as well as compact SUVs like the Tata Punch and Hyundai Exter, will benefit the most. Buyers could see up to 13% savings on ex-showroom prices.
Additionally, the reduction in GST on auto parts and components could lower factory costs, further bringing down prices if carmakers choose to pass these savings on.
On-Road Price Benefits Too
The price drop doesn’t stop at ex-showroom costs. Since road tax and RTO charges are calculated on the ex-showroom price, buyers may also save on registration costs. This will make the final on-road price even more affordable.
The Catch: Will Carmakers Pass It On?
While tax cuts are clear, the extent of savings for customers will depend on carmakers. Some may pass on the full benefit, while others may retain a portion as profit. Final savings will only be visible once new ex-showroom prices are released.
