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GST cut on cars, bikes likely soon: Expected percentage and who gains most

Sandy Verma | August 19, 2025 10:24 AM CST

Car and bike buyers may soon have a reason to cheer this festive season, as the government is working on a plan to slash the Goods and Services Tax (GST) on automobiles. The move is aimed at making passenger vehicles and two-wheelers more affordable for the masses. The Finance Ministry has already forwarded its proposal to the GST Council, suggesting a simplified two-slab structure of 5% and 18% across all goods, replacing the current four-tier system, IANS reported.

GST reduction for cars, bikes: Who benefits and how

At present, passenger vehicles attract 28% GST, and on top of that, a compensation cess ranging from 1% to 22% depending on engine size, length, and body type. This means the overall tax outgo on cars can go up to nearly 50%. Electric cars, however, enjoy a much lower 5% GST rate with no cess.Two-wheelers also fall under the 28% GST slab. While entry-level and mid-segment bikes up to 350cc do not carry any cess, larger bikes with engines above 350cc are charged an additional 3%.

If the proposed structure is cleared, the 28% slab would be replaced with 18%. This change is expected to give a big boost to mass-market segments such as hatchbacks, compact SUVs, commuter motorcycles, and scooters, which together make up the bulk of India’s auto sales. For two-wheelers, which are still the most common mode of transport for daily commuters, an 18% GST rate would directly reduce costs. This is significant because motorcycles and scooters in the entry-level and commuter space form the largest chunk of sales in India.