GST 2.0 and Automobiles: How India’s New Tax Slabs Make Cars, Bikes, and EVs Cheaper in 2025
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India’s tax system just went through its biggest shake-up since the original GST launch in 2017. On September 22, 2025, the new Gen GST 2.0 regime officially kicked in, moving from four slabs (5%, 12%, 18%, 28%) to a simplified structure of 5%, 18%, and a special 40% for luxury and sin goods.
For the automobile sector, this overhaul is nothing short of a game-changer. From hatchbacks and bikes to premium cars and EVs, the new GST rules directly impact what you pay at the showroom and how you insure your vehicle. Let’s break it down.
Cars, Two-Wheelers, and Auto Parts Get Cheaper
Until now, most automobiles–including small cars, two-wheelers, and auto components–were taxed at the steep 28% slab. With GST 2.0, that rate has dropped to 18%.
What this means for buyers:
- Small cars & two-wheelers: Lower ex-showroom prices, making ownership more accessible to first-time buyers.
- Auto parts & cement (for infrastructure): Now at 18%, reducing repair and maintenance costs for car owners.
- Premium brands: Carmakers like Mahindra and Audi have already announced price cuts ranging from a few thousand rupees to several lakhs, directly passing the GST benefit to customers.
This is excellent news if you’ve been planning to upgrade your vehicle or buy your first bike–your purchase just got significantly lighter on the pocket.
EVs Continue to Shine at 5%
Electric vehicles (EVs) retain their concessional 5% GST rate, making them the most tax-friendly segment of the market. Combined with state-level subsidies and lower running costs, EVs are now among the most financially smart automobile choices.
If you’ve been on the fence about going electric, GST 2.0 gives you one more reason to make the switch.
To understand how the EV revolution is changing financing options, check out our detailed guide onIndia’s EV boom and its impact on car loans in 2025.
Quick Summary Table
| Category | GST Rate Now | Impact |
|---|---|---|
|
Household essentials |
5% |
Daily savings for families |
|
Food staples |
0–5% |
Cheaper groceries |
|
Electronics & appliances |
18% |
Affordable big purchases |
|
Small vehicles & auto parts |
18% |
Lower prices, more demand |
|
Electric vehicles |
5% |
Best time to buy EVs |
|
Insurance |
Nil |
Policies cheaper |
|
Luxury & sin goods |
40% |
Costlier by design |
|
Cosmetics & detergents |
18% |
No relief |
Motor Insurance Now GST-Free
The benefit:
- Car insurance & bike insurance premiums drop instantly by almost one-fifth.
- For someone paying ₹20,000 annually on motor insurance, this reform alone saves ₹
Luxury Cars Still Costly Under 40% Slab
Not every segment has received relief. Luxury cars, SUVs above a certain engine capacity, and sin-linked goods like tobacco remain under the new 40% slab. This ensures premium buyers continue to pay higher taxes, while affordability improves in the mass and mid-range markets.
Loan Bazaar’s Take – Driving Affordability Home
At Loan Bazaar, we see GST 2.0 as a turning point for car and bike buyers across India. With lower GST and cheaper insurance, it’s the best time to explore your dream vehicle.
- Car Loans & Two-Wheeler Loans: With ex-showroom prices dropping, our low-EMI financing options make ownership easier than ever.
- EV Financing:Special loan schemes for electric vehicles mean you save both upfront and in the long run.
- Motor Insurance Plans: With GST out of the picture, we help you pick the most affordable policies for maximum protection.
Final Word
The GST 2.0 reform has brought real relief to car and bike buyers in India. Everyday vehicles are cheaper, maintenance costs are lower, and motor insurance premiums are finally tax-free. While luxury cars remain pricey by design, the broader automobile market is set for a strong demand revival.
For anyone considering a new purchase, Loan Bazaar ensures you drive home smarter– backed by the best loan options and the most affordable insurance plans.
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