On 22 September 2025, the Indian government implemented major changes to the GST (Goods & Services Tax) slabs for motor vehicles. These changes aim to simplify taxation, reduce costs for many buyers, and rationalize how vehicles are taxed.
In this blog, we’ll cover:
- What exactly changed?
- Who benefits and who pays more
- How this affects vehicle prices, EMIs, and insurance costs
- Things for buyers to keep in mind
What Changed: The New GST Slabs
Here are the major revisions introduced from 22 September 2025:
Who Benefits, and Who Will Be Paying More
Winners (Lower GST / Cheaper Vehicles)
Buyers of two-wheelers up to 350 cc (motorbikes, scooters) will see costs drop because of the reduced GST from 28% to 18%.
Buyers of small cars (≤ 1200 cc petrol / ≤ 1500 cc diesel, length < 4m) will also benefit from lower rates. Many entry-level cars will now be cheaper.
Owners needing commercial vehicles like small trucks, buses, etc., for business or transport will get relief as the GST slips to 18%.
People who buy EVs are still in an advantageous position, since their GST remains low (5%).
Those Paying More / Little Relief
Two-wheelers above 350 cc will face higher GST (40%) from what was earlier lower (28 + cess) for many models. So premium/higher-displacement bikes will get more expensive.
Large or luxury cars / SUVs with higher displacement or length > 4m will now attract 40% without cess—but while GST is 40%, removal of cess still partly softens the blow. Still, the change might not be much relief compared to earlier for that segment.
Effects on Ex-Showroom Price, EMIs & Insurance
Since GST is part of the ex-showroom price, reducing GST means a lower base cost. That translates into lower initial registration charges, road tax (in some states linked to vehicle price), insurance premium (especially the “own-damage” component).
For financed purchases, EMIs will come down because the loan amount is based on vehicle cost. Buyers of small cars or smaller bikes will see noticeable savings in monthly payments.
For insurance: the cost of the motor insurance premium (own damage plus third party) depends on vehicle value. Since vehicle value drops with lower GST, own damage premiums will reduce. However, third-party liability premium is regulated by government and depends mostly on engine size and category—so that may not change much.
Why These Changes Were Made: Government Goals
Rationalize GST slabs: reduce complexity, remove multiple cesses, and make taxation simpler. Make vehicles more affordable, especially for middle class, youth, and rural users.
Boost demand in auto sector—manufacturers, dealers, ancillary industries will all benefit. Support environmental goals: EVs continue to have low tax; encourage newer, cleaner vehicles.
Things to Keep in Mind
Price cuts will be effective only after the new GST slabs are in force (from 22 September 2025) by manufacturers / dealers. Some may take time to adjust.
While ex-showroom prices fall, on-road cost includes registration, insurance, and state VAT/taxes—those may or may not adjust proportionally.
Premium bikes/large cars may still see high costs despite cess removal due to 40% GST rate.
Buyers need to check whether the model qualifies under small car / small bike criteria (engine capacity, vehicle length, etc.). Not all models will meet the threshold.
Conclusion
The GST reforms for two-wheelers and four-wheelers introduced from 22 September 2025 are a major win for buyers in the affordable vehicle segment. If you’re buying a small car or bike under 350 cc, you stand to save quite a bit. Premium vehicles will face higher tax, but removal of cess and simplification helps bring transparency.
If you’re planning a purchase soon, check the model specifications, wait till the updated prices are announced, and don’t forget to factor in insurance, road tax, and registration. The reforms promise relief, but the actual savings will depend on your choice of vehicle and where you buy it.
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