Government Cuts Cess : Luxury Cars and SUVs May Cost Less Despite 40% GST

The Indian automobile sector is undergoing a major shift in its taxation framework. Union Finance Minister Nirmala Sitharaman recently announced a revised Goods and Services Tax (GST) structure, effective from September 22, 2025. At first glance, the news of 40% GST on luxury cars and SUVs looks like a burden for buyers. However, since the government has removed the cess, the overall tax incidence is actually lower than before, which makes big cars and SUVs slightly cheaper.

Luxury Cars and SUVs

Earlier, the government imposed 28% GST plus 17–22% cess on luxury and premium cars. This pushed the effective tax burden to 45–50%. Now, under the new system, the council has placed these vehicles under a flat 40% GST slab, without cess. As a result, buyers of Mercedes-Benz, BMW, Audi, Jaguar, and Volvo may finally see reduced on-road prices.

Commercial Vehicles

Commercial vehicles such as trucks, buses, and ambulances earlier attracted 28% GST. The new GST regime cuts their tax to 18% flat, giving logistics companies and transport operators direct relief.

Auto Parts

Previously, the government taxed auto parts under multiple slabs, depending on HS codes. The new system simplifies this by bringing all auto parts into a uniform 18% GST slab. This move eliminates confusion and ensures more transparent pricing.

Three-Wheelers

The council has also placed auto-rickshaws and other three-wheelers under the 18% GST rate. This step directly benefits small-scale transport operators and improves last-mile connectivity.

Electric Vehicles (EVs)

The GST on Battery Electric Vehicles (BEVs) stays unchanged. By keeping EVs under a low tax bracket, the government encourages faster adoption of sustainable mobility and accelerates India’s green mission.

Industry Reactions

• Santosh Iyer, CEO of Mercedes-Benz India, praised the decision, calling it progressive. He said the unchanged EV rate would boost clean mobility and increase car sales.
• Balbir Singh Dhillon, Head of Audi India, welcomed the simplification, saying it improves transparency and makes luxury cars more accessible.

Why It Matters

• The new structure removes cess and brings uniformity.
• It comes right before the festive season, a peak period for car sales.
• Buyers get luxury cars and SUVs at slightly lower prices.
• Transport and logistics firms save money because of lower commercial vehicle tax.
• EV adoption grows faster as the low rate continues.

Conclusion

The revised GST regime directly helps both customers and automakers. Even though the slab for luxury cars and SUVs now stands at 40%, the removal of cess makes them cheaper than before. The reduction for commercial vehicles, auto parts, and three-wheelers further adds relief. By retaining low GST rates for EVs, the government has reinforced its focus on green mobility. Overall, this reform creates a transparent, simplified, and growth-oriented framework for India’s automobile sector.