In a slight relief, luxury car buyers have seen an effective tax rate cut down to 40%, but luxury motorcycle buyers may still need to pay more, with the GST Council approving a hike in the effective tax rate on high-end models. Under the new structure, the GST rate on motorcycles with engines above 350cc has been increased to 40%, up from the earlier 31% (28% GST + 3% cess).
As far as mid-size and big cars are concerned, they currently attract a 28% GST and compensation cess ranging from 17-22% with the overall tax incidence ranging from 45-50%. The new GST rate on big cars will be 40% with no compensation cess.
Finance Minister Nirmala Sitharaman said,“There’s only one special rate for sin and super luxury goods, which is special rate of 40% will apply to paan masala, cigarette, gukta… mid-size and large cars, motorcycles of engine capacity exceeding 350cc, aircraft, airplanes for personal use... are all under 40%.”
The move is expected to push up on-road prices of popular premium motorcycles by 10–12% or more. For instance, bikes like the Royal Enfield 650cc, KTM 390, and Harley-Davidson models will now fall under the new 40% slab. Similarly, large SUVs and luxury sedans, which were already taxed at some of the highest rates globally, will see a slight effective relief.
In contrast, small cars and two-wheelers up to 350cc will benefit from a reduction in GST from 28% to 18%. This makes mass-market vehicles more affordable, aligning with the government’s broader strategy to encourage first-time buyers and improve mobility access.
The new structure essentially bifurcates the automobile market making entry-level and commuter vehicles more accessible while taxing luxury and high-performance models at par with other “sin goods.” Analysts note this could further narrow the aspirational affordability gap for middle-class buyers but may weigh on demand particularly in the mid-luxury motorcycle segment, which has been one of India’s fastest-growing niches.