FADA warns of ₹2,500 crore cess loss as GST 2.0 simplifies automotive sector’s tax

The Federation of Automobile Dealers Associations (FADA) has estimated a ₹2,500 crore cess loss for dealers due to the unclarified “levy and treatment of cess balances currently lying in dealers’ books,” according to its release.FADA President CS Vigneshwar said, “One area that may needs earliest clarification is about levy and treatment of cess balances currently lying in dealers’ books, so that there is no ambiguity during transition,” stressing the urgency ahead of the festive season.

Effective September 22, 2025, the government has simplified the automotive sector’s tax structure.

GST on small cars—petrol, LPG, or CNG vehicles up to 1200 cc and 4000 mm in length, and diesel cars up to 1500 cc and 4000 mm—has been reduced from 28% to 18%.
Motorcycles up to 350 cc, three-wheelers, commercial vehicles such as buses, trucks, and ambulances, and all auto parts will also now attract 18% GST, down from 28%.Tractors, tractor tyres, and parts will see a GST cut from 12% or 18% to 5%, while electric vehicles remain taxed at 5%.

Mid-size and large cars exceeding 1500 cc or 4000 mm, including SUVs, MUVs, MPVs, and XUVs with ground clearance of 170 mm or more, will face a 40% GST rate, along with motorcycles above 350 cc and luxury vehicles such as helicopters and yachts.

Previously, these vehicles incurred 28% GST plus a 17–22% cess, totalling 45–50%. Removing the cess lowers the overall tax burden despite the higher GST rate.

FADA welcomed the reforms for boosting affordability and demand, praising the Prime Minister, Finance Minister, and GST Council for their unanimous decision.

“As the country heads into the peak festive season, glitch-free and implementation will be the key to ensuring that the benefits seamlessly reach customers,” Vigneshwar said.