GST on big cars increased but car price gets down what is the formula – GST on big cars increased in India, yet how did they become cheaper? Know

New Delhi. Big cars and SUVs have always been a status symbol in India. It was not easy to buy them, because the tax burden on them was much higher than ordinary cars. But the government has made major changes in the GST structure in September 2025. According to this change, GST on cars less than 1200 cc and length less than 4000 mm is now only 18 percent, whereas earlier it was 28 percent. GST on cars with larger capacity and size has been increased from 28 percent to 40 percent. Despite the increase in GST rates on big cars, have their prices reduced? Why?

Actually, the government has increased the GST rates, but the cess which was levied earlier has been removed. Due to this, the total tax has reduced. Car companies have also reduced the prices of cars, so that the benefits of tax cuts reach the common people. This can be understood with some examples.

Till now, SUVs or luxury cars longer than 4 meters and with engine capacity more than 1500cc were subject to double tax in the country. Initially 28% GST was applicable. Compensation cess ranging from 17% to 22% was imposed on it. That is, in this way the total tax burden would reach 45% to 50%, due to which the ex-showroom prices of these cars would increase by lakhs of rupees.

What has the government changed?

After GST 2.0, which was implemented in September 2025, the government has made a big change. Now 40% flat GST will be applicable on big cars, SUVs and premium sedans. Compensation cess of 17 to 22% has been completely removed. The real reason for the decline in car prices is the removal of ‘Compensation Cess’. Now the total tax has reduced by 10%. So this means that the tax which earlier used to be up to 50 percent, is now limited to 40 percent only.

Prices on SUVs like Mahindra XUV700, Scorpio N, and Thar Roxx have dropped by Rs 1.3 to 1.4 lakh. There has also been a direct reduction of 8-10% on big vehicles like Toyota Fortuner, Innova, Kia Seltos. Luxury vehicles like Mercedes-Benz GLS, BMW 7 Series are now seeing a decline of 8-9% in the total body rate.