Under 1200cc? Small Cars May Get GST Relief Under New Rate Rejig Proposal

The Centre is considering a major overhaul in the GST structure for automobiles, proposing a new categorisation based on engine capacity rather than vehicle type. This could pave the way for lower tax rates on small cars and the elimination of the current, often confusing, definition of SUVs under GST, sources told NDTV Profit.

Under the proposed framework, small cars with engines below 1200cc would form one category, while bigger cars, with engines above 1200cc, would fall into a second, higher-tax bracket, they said.

If implemented, small cars could attract a reduced GST rate of 18%, down from the existing 28% plus applicable cess — a move that could potentially boost demand in the entry-level segment.

SUV Definition May Be Dropped

Sources said that current definition of SUVs for GST classification could be removed to avoid confusion. It currently considers factors like ground clearance and length, alongside engine capacity. This change could simplify the tax structure and remove ambiguity in vehicle classification.

At present, entry-level hatchbacks, small sedans, and compact SUVs fall under the highest-tax bracket - 28% GST. Additional cess goes up to 22%, depending on the vehicle’s specifications.

The proposed changes, if cleared, could bring much-needed rationalisation in car taxation, especially for budget-conscious consumers. However, final decisions are likely to be taken after further discussions, including within the Group of Ministers (GoM) overseeing GST-related reforms. GoM headed by Bihar deputy chief minister Samrat Chaudhary is expected to meet this week to deliberate upon Centre's proposed three key pillars on GST 2.0.