Planning to buy a new car in India? If it’s a small car, hold on just a little longer. From September 22 onwards, a major tax reform under the new GST rule is set to shake up car prices—and in a good way for buyers. Thanks to this change, small cars, especially the sub-4 metre category, are about to become significantly more affordable. Let’s break down what’s changing and how it directly affects your wallet.
Changes
Before we talk savings, let’s know how things were and what’s about to change. When you buy a car, you’re not just paying for the car itself. You’re also paying GST and something called a compensation cess, both built into the ex-showroom price. And on top of that? Road tax, which is based on this inflated number.
Here’s a quick side-by-side comparison of the old vs new tax structure:
Petrol, CNG, LPG Cars (Up to 4m, ≤1200cc)
| Category | GST | Compensation Cess | Total Tax |
|---|---|---|---|
| Old | 28% | 1% | 29% |
| New | 18% | 0% | 18% |
| Savings | 10% | 1% | 11% |
Diesel Cars (Up to 4m, ≤1500cc)
| Category | GST | Compensation Cess | Total Tax |
|---|---|---|---|
| Old | 28% | 3% | 31% |
| New | 18% | 0% | 18% |
| Savings | 10% | 3% | 13% |
That’s not just a number—it’s a potential saving of up to ₹1 lakh or more depending on the model and variant.
Models
So, which cars will benefit the most? Any small car under 4 metres in length, and with an engine size up to 1.2L for petrol/CNG/LPG or 1.5L for diesel, qualifies.
This includes popular models like:
- Maruti Swift
- Tata Tiago
- Hyundai i20
- Tata Punch
- Hyundai Exter
- Maruti WagonR
- Renault Kiger
- Nissan Magnite
Even compact SUVs like the Tata Nexon, Mahindra XUV 3XO, and Kia Syros fall under the category and will enjoy reduced tax rates. That’s right—these sub-4m SUVs aren’t just stylish; now they’ll be significantly cheaper too.
Pricing
The GST cut isn’t just a win on paper. It has a ripple effect. With GST and cess charges slashed, the ex-showroom price comes down. And since road tax is calculated on this price, your on-road price drops too. That’s double-dip savings right there.
There’s another angle as well—GST on auto components has also been reduced. This means the factory price of cars could decrease. If manufacturers decide to pass on that benefit to customers instead of pocketing the extra margin, then you’re looking at even more discounts.
But here’s the catch: carmakers aren’t obligated to pass on 100% of the savings. So the exact price drop will vary by brand. Some may be generous; others, not so much.
Strategy
If you’ve been eyeing a car, especially a hatchback or compact SUV, it makes sense to wait until after September 22. That’s when the new GST rule officially kicks in.
However, don’t wait too long. Historically, carmakers hike prices at the beginning of the new year. So the smart move? Buy after the new rates kick in, but before 2026 rolls in with its usual price hikes.
Cars like the Maruti Brezza (1.5L engine) will still see some benefit—their overall tax drops from 45% to 40%. But cars above the sub-4m limit, like the Hyundai Creta or Tata Harrier, won’t enjoy the same level of relief. Their tax structure remains largely unchanged.
So, if you’re targeting a small car, this is your window of opportunity.
Thanks to this game-changing GST reform, buying a small car in India just became a lot more rewarding. The savings are not only significant but also layered—from GST to road tax and possibly even the car’s base price. While the exact discount will depend on the carmaker, the numbers already make a strong case for waiting until after September 22. Just don’t wait too long—those year-end price hikes are never far behind.
FAQs
What is the new GST rate on small cars?
The new GST rate is 18%, down from 28%.
Which cars benefit most from this rule?
Sub-4m cars like Swift, Tiago, Punch, etc.
When will the new GST rule apply?
It kicks in from September 22 onwards.
Does this affect road tax too?
Yes, since road tax is based on ex-showroom price.
Will car prices go up next year?
Most likely, due to annual price revisions.
