Luxury Cars and SUVs May Get Cheaper Despite 40% GST – Here’s Why

The Indian automobile industry has witnessed a major tax reform after Union Finance Minister Nirmala Sitharaman announced the new GST framework. At first glance, the news of a 40% GST slab on luxury cars and SUVs may sound like a price hike, but in reality, buyers might soon pay less for their dream machines. Let’s understand why.

Old vs New Tax Regime

Previously, luxury cars and SUVs were taxed at 28% GST. On top of that, an additional cess of 17–22% was levied, which pushed the overall tax incidence close to 45–50%. This meant customers were paying nearly half the vehicle’s value as taxes.

Now, under the revised system, these vehicles fall into a single 40% GST slab, with no additional cess. As a result, the effective tax burden is slightly lower, which could reduce on-road prices of luxury cars such as Mercedes-Benz, BMW, Audi, and other premium brands.

Why It Matters

The new GST regime, effective from September 22, 2025, simplifies taxation and removes the earlier confusion of multiple cess categories. With this change:

• Luxury cars & SUVs → 40% GST, no cess

• Commercial vehicles (buses, trucks, ambulances) → 18% GST (down from 28%)

• Auto parts → 18% GST (uniform across categories)

• Three-wheelers → 18% GST

• Electric Vehicles (EVs/BEVs) → No change, low GST continues

This rationalization could boost automobile sales ahead of the festive season.

Industry Response

Santosh Iyer, MD & CEO of Mercedes-Benz India, welcomed the reform, saying it aligns with the long-standing industry demand for GST rationalization. He highlighted that maintaining low GST on electric vehicles will encourage faster adoption of clean mobility.

Balbir Singh Dhillon, Head of Audi India, called it a “progressive step” that supports industry growth, enhances transparency, and strengthens India’s economic vision.

Impact on Buyers and Market

• Lower Prices: Luxury car buyers may save a small but meaningful amount.

• Festive Boost: The auto sector expects higher demand during the upcoming festive season.

• Clarity for Businesses: Uniform tax slabs reduce confusion and improve transparency.

• Push for EVs: Low GST on EVs will further strengthen India’s shift towards green mobility.

Final Word

The 40% GST rate might sound higher, but the removal of cess makes luxury cars and SUVs more affordable than before. Combined with reduced GST on commercial vehicles and parts, this reform is expected to fuel growth across the Indian auto sector.

So, if you’re planning to buy a luxury car, the festive season of 2025 might just be the right time.