Why Buying A Small Car After September 22 Under The New GST Rule Could Save You Big Money
While the sub-4m segment will reap the maximum benefits of the new tax regime, the exact amount of savings will depend on how much carmakers choose to pass on to customers
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GST on all cars up to 4 metres in length has been reduced from 28% to 18%.
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The compensation cess that used to be applied to the ex-showroom price earlier has been completely removed.
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These tax cuts will be applicable from 22 September 2025.
Diwali seems to have arrived early this year with the government rolling out historical GST tax reforms that will make literally every four-wheeler on the Indian road more affordable post September 22. Of course, the degree of benefits varies depending on the size of the vehicle and engine capacity. So if you were planning to bring home a sub-4m car soon, here’s what the new GST regime means for you.
Before and After
Buying a new car involves paying taxes on multiple levels. Apart from the registration tax that you pay on the ex-showroom price of the vehicle, the ex-showroom price itself includes factory cost, GST and cess.
| Passenger Vehicles (Petrol, CNG, LPG) Up To 4m in length and Up To 1200cc engine |
|||
| GST |
Compensation Cess |
Total Tax |
|
| Old |
28% |
1% |
29% |
| New |
18% |
0 |
18% |
| Savings |
10% |
11% |
|
For sub-4m cars with an engine capacity (Petrol, CNG, LPG) of up to 1.2-litres (1200cc), the GST and compensation Cess were 28% and 1% respectively, taking the total tax to 29%. For a diesel vehicle with a capacity of up to 1.5 litres (1500cc), the GST was still 28%, but the Cess was slightly higher at 3%.
| Passenger Vehicles (Diesel) Up to 4m in Length and Up to 1500cc engine |
|||
| GST |
Compensation Cess |
Total Tax |
|
| Old |
28% |
3% |
31% |
| New |
18% |
0 |
18% |
| Savings |
10% |
13% |
|
However, with the new reform, the government has done away with the compensation cess entirely. Not just that, they’ve also brought down the GST charge from 28% to 18% for all petrol, diesel, CNG and LPG vehicles under 4 metres.
Also Read: GST Rate Cut For Cars: Cess Removed, All Cars To Get Cheaper
What Does It Mean For You?
Savings. As simple as that. If you buy a new sub-4m car post September 22 (that’s when the new regime will come into play), you will definitely save some money. So your hatchbacks, including the likes of the Tata Tiago, Maruti Swift, Hyundai i20, and even the micro SUVs like Tata Punch and Hyundai Exter will be taxed much lower than before.
The likes of the Tata Nexon, Mahindra XUV 3XO, and Kia Syros too will see a drop in their price, with savings of up to 13% on the ex-showroom price. Even the Maruti Brezza, which gets a 1.5-litre NA petrol engine, will see a reduced tax rate (from 45% earlier to 40%).
Additionally, since GST on various auto parts and components has been slashed, the factory price of cars may also come down. If carmakers pass on this benefit to customers, the savings could be even higher.
However, the degree of savings that is going to be passed on to the customers is still unknown. It is very well possible that carmakers might increase their profit margins by not transferring all the benefits to the customers. So the savings will vary from carmaker to carmaker and the exact percentage of tax relief being passed onto customers will only be clear once the new ex-showroom prices are announced.
Another advantage is that you may end up paying lower road tax, since RTO charges are calculated on the ex-showroom price. With the base amount dropping, buyers can expect additional savings on the on-road price as well. The bottom line is that there will be savings for sure, but the extent of benefits will be dependent on the carmaker itself.
CarDekho Says
If you are planning to buy a new car, the smart move would be to wait and postpone that purchase until September 22. Because, irrespective of the segment you’re going for, this new tax reform brings savings across the board. And once the revised ex-showroom rates come into effect, it would be wise to make your purchase before carmakers hike up the prices next year as part of their yearly increments. Because, even after the yearly price revisions, the savings will be mega for small car buyers (sub-4m), but the benefits will be limited and could be offset by next year’s price increases for cars like the Hyundai Creta and Tata Harrier. You can read more about the impact of the new reforms on bigger cars in this story.
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