GST on Cars in India 2026: 18% or 40%, EVs, Used Cars and Car Rental

What is the GST rate on cars after 22 September 2025?

A small car now pays 18% GST and every other car pays 40%, with no compensation cess on top. Electric cars stay at 5%. These rates come from Notification 9/2025-Central Tax (Rate) dated 17 September 2025, in force from 22 September 2025, which replaced the old goods rate notification after the 56th GST Council meeting.

The Council’s official FAQ on the 56th meeting says small cars moved from 28% to 18%, and that mid-size and big cars, which paid 28% plus compensation cess of 17% to 22%, now pay 40% with no cess. Notification 02/2025-Compensation Cess (Rate) set the relevant cess entries to Nil from the same date.

Within a state, 18% shows on the invoice as 9% CGST plus 9% SGST and 40% as 20% plus 20%; a sale between states shows IGST. Later amendments to Notification 9/2025, in force from 1 May 2026 and 1 November 2026, change drink and tyre entries but not the car entries.

How do engine size and the 4-metre length decide 18% or 40%?

A car gets 18% only if it meets both tests: length up to 4000 mm and an engine within the limit for its fuel. Fail either test and the car falls into the 40% entry. Each entry adds that the specification is decided as per the Motor Vehicles Act, 1988 and its rules.

• Petrol, LPG and CNG: engine up to 1200cc. A petrol car of 1300cc is at 40% even if it is under 4 metres.
• Diesel: engine up to 1500cc.
• Length: up to 4000 mm for both. A car over 4 metres is at 40% whatever its engine size.
• Hybrids: the same limits apply to petrol-electric and diesel-electric hybrids, under serials 538 and 539 at 18% or serials 6 and 7 of Schedule III at 40%.
• SUVs: there is no separate SUV entry now. An SUV that passes both tests is at 18%; most larger ones fall at 40%.

Many searches assume the rate depends on the car’s price. It does not. The rate depends only on fuel, engine capacity and length, so two cars with very different prices can carry the same rate.

What is the GST on electric and hybrid cars?

An electric car pays 5% GST under serial 441 of Schedule I, which covers electrically operated vehicles that run solely on electrical energy from an external source or from batteries fitted to the vehicle. The 56th Council meeting did not change this rate.

A charger or charging station for electric vehicles is also at 5%, under serial 438 of Schedule I. Hybrids are not “electrically operated vehicles” under that definition, because they also have a petrol or diesel engine. They follow the engine and length tests in the previous section, so a small hybrid is at 18% and a larger one at 40%.

How is GST charged on a used or second-hand car?

A dealer or business selling an old or used car can pay GST at 18% on its margin instead of the full rate on the full price, under Notification 8/2018-Central Tax (Rate), if it has not claimed input tax credit on that car.

Notification 8/2018 taxes old and used vehicles at 9% central tax on the margin. Its last category, all other old and used vehicles, was raised from 6% to 9% by Notification 04/2025 from 16 January 2025, so every category is now at 18% in total. Notification 12/2025 linked it to Schedules II and III of the new rate notification from 22 September 2025.

• Margin, general case: selling price minus purchase price. A negative margin is ignored.
• Margin, where income-tax depreciation was claimed: sale price minus the depreciated value on the date of sale.
• Condition: the scheme does not apply if the seller took input tax credit on the car.
• Worked example: a dealer buys a used car for 100 and sells it for 110. GST at 18% applies to the margin of 10, so the tax is 1.8.

A private individual selling a personal car is usually outside GST, because Section 7 of the CGST Act covers supplies made “in the course or furtherance of business”. A company selling its old office car is a different case. Its CA should check whether it falls under the margin scheme.

What is the GST on car spare parts, tyres, batteries and servicing?

Car parts and accessories under heading 8708, new tyres and batteries are all at 18% under Schedule II of Notification 9/2025. The Council’s press release describes this as a uniform 18% on auto parts.

Accessories such as seat covers, car perfume or audio units are classified under their own headings, so check the HSN code on the bill. Labour for servicing, repair and car washing is a service: the CBIC explanatory notes place it under SAC 998714, and the general maintenance and repair entry, serial 25 of Notification 11/2017, carries 18%.

What is the GST on car rental, cab hire and self-drive cars?

Renting a car with a driver, where fuel is included in the charge, is taxed at 5% with credit limited to the same line of business, or 18% with full credit. The higher option was 12% before 22 September 2025. Notification 15/2025 raised the central tax in serial 10, item (i) of the services rate notification from 6% to 9%.

For self-drive hire, the Council’s list of service rate changes shows leasing or rental without operator of goods taxed at 40% moving from 28% to 40%, matching the goods rate. Notification 06/2026, in force from 1 November 2026, adds the separate entries for electric cars.

When a company hires a car with a driver for a period from a supplier that is not a company, the company pays the tax under reverse charge. Circular 177/09/2022-TRU clarifies that this applies to renting for a period, not to bookings for specific trips. Notification 08/2026 changes the figure in that reverse-charge entry from 6 to 9 from 1 November 2026. Buses and goods transport are covered in our guide to GST on transport, GTA, bus and cab services.

Can a business claim input tax credit on a car purchase?

Usually not. Section 17(5)(a) of the CGST Act blocks credit on motor vehicles that seat up to 13 people, including the driver. The exceptions are cars used for further supply of such cars, for transporting passengers, or for driving training.

• Blocked: a company car used by staff or directors, and the GST on its insurance, servicing and repair, under Section 17(5)(ab).
• Blocked: leasing, renting or hiring such cars, under Section 17(5)(b)(i), unless used for the excepted purposes.
• Allowed: a dealer buying cars for resale, a taxi or car rental operator, and a driving school, subject to the usual conditions.
• Car insurance: the September 2025 exemption covers individual life and health policies only. Motor insurance was not part of it.
• Car loan: interest is exempt under serial 27 of Notification 12/2017, so an EMI carries no GST on its interest part. Fees charged separately are not interest.

The credit rules for other business bills work differently, as our guide to GST on Google Ads invoices and ITC shows.

How DVM Techno Can Help

DVM Techno is a web development company in Sector 84, Gurgaon, with a branch in Kasni, Jhajjar. Our car rental website design covers fleet pages by car type and seating, separate self-drive and with-driver pages, a booking form for pickup, drop, dates and car type with requests sent to WhatsApp and email, and pages for documents, deposit and cancellation terms. For car washes and detailing studios, our car wash website design adds package pages and WhatsApp slot booking. Your GST treatment stays with your CA.

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