• Source:JND
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GST Reforms: After major changes in GST rates, automobile companies are now expecting car sales to rise during the festive season. The key point is that GST rates on cars up to 1200 cc have been reduced, but taxes on luxury cars have gone up to 40 per cent from the earlier GST rate of 28 per cent.

Still, luxury carmakers like BMW, Mercedes and Audi are offering discounts of up to Rs 10 lakh on their models. This is because luxury cars will attract 40 per cent GST but no cess, which has lowered their overall prices under the new decision of the GST Council.

Earlier, luxury cars were charged 28 per cent GST plus cess, which pushed the total tax rate to nearly 50 per cent. Hardeep Singh Brar, President and CEO of BMW Group India, said, "A 40% GST on premium cars without any additional cess is good news for the premium car industry and will boost fresh sales."

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Similarly, Hyundai Motor India’s MD Unsoo Kim stated that the GST changes will directly benefit the automotive sector.

What Is Cess?

A cess is a form of tax levied by the government over and above existing taxes to raise funds for a specific purpose. Unlike general taxes, which go into the Consolidated Fund of India for broad use, revenue from a cess is earmarked for targeted schemes.

For example, the education cess is used to fund school infrastructure and learning initiatives, while the health and infrastructure cesses support healthcare projects and road development. The Centre imposes a cess on items such as petrol, diesel, or certain luxury goods. Unlike other taxes, the revenue from a cess is not shared with states.

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The recent GST reforms, dubbed GST 2.0, mark a big shift in the Cess-related policy as the government is removing the compensation cess as part of simplifying tax rates and easing costs.

For instance, coal, earlier taxed at 5 per cent GST plus a flat compensation cess of Rs 400 per tonne, will now attract only GST at 18 per cent with no cess. Likewise, in auto, luxury cars that earlier paid GST plus a hefty cess (up to + 22 per cent) will now fall under a flat GST slab (40 per cent) with the cess component abolished.

GST Reforms: Revised GST Rates On Cars

- Petrol, LPG, and CNG vehicles with engine capacity below 1,200 cc and length under 4,000 mm, and diesel vehicles with engine capacity up to 1,500 cc and length under 4,000 mm, now fall under the 18 per cent tax bracket.

- Earlier, these categories attracted 28 per cent GST plus a 1 per cent compensation cess (petrol/LPG/CNG) and 28 per cent GST plus a 3 per cent compensation cess (diesel).

- For luxury cars, earlier the total tax rate went as high as 55 per cent (28% GST + cess).

GST Reforms: How Much Cheaper Will Luxury Cars Get?

Following the GST changes, Mercedes-Benz has announced new prices for some of its most popular cars, effective September 22, 2025, across all dealerships in India. BMW is offering the biggest benefit on its X7, which has now become Rs 8.9 lakh cheaper.

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Meanwhile, Audi India has also announced price cuts of more than Rs 7.8 lakh on its models, starting immediately, to pass on the GST benefit. Jaguar Land Rover (Tata Group) will also fully pass on the GST reduction, cutting prices of its cars by Rs 4.6 lakh to Rs 9.9 lakh.

We view the GST simplification as a step in the right direction – one that supports industry growth and helps us expand the market. It also enhances transparency and aligns with India’s economic vision," Balbir Singh Dhillon, Head of Audi India, said.

"The GST Council’s move to retain a low rate for EVs is a welcome step; this brings much-needed clarity and makes our portfolio more accessible to our discerning buyers. Such reforms help stabilize the business environment and help devise strategies that benefit all stakeholders in the best possible manner," Dhillon added.