GST Rate Cut on Motorcycles: Bikes Under 350cc Engine Capacity to be Taxed at 18 Percent from Sep 22

The decision comes as part of a larger reform in the indirect tax regime. The Council has moved towards a two-rate structure of 5% and 18% for most goods and services. The Union Finance Minister, Nirmala Sitharaman, confirmed the rationalization after the Council’s meeting.

The new tax rate is expected to impact commuter and mid-segment motorcycles, which make up a large share of the Indian two-wheeler market. However, premium motorcycles above 350cc will see no change in taxation, continuing at 40%.

The Council did not clarify the definitions of small, mid-size or large vehicles. Several reports suggests that existing classification to continue, which defines smaller cars as those under four metres in length and with engines up to 1200cc (petrol) or 1500cc (diesel). For motorcycles, the 350cc threshold has been kept as the dividing line.

Along with motorcycles, the GST Council has reduced the tax rate on small cars. Petrol and petrol-hybrid cars up to 1200cc and 4000mm, as well as diesel and diesel-hybrid cars up to 1500cc and 4000mm, will now fall under the 18% slab instead of 28%. Mid-size and large cars remain taxed at 40%.

Recently, the Society of Indian Automobile Manufacturers (SIAM) organised the 2nd SIAM Automotive Taxation Conference 2025, where the GST rate change was among the issues discussed. Speakers highlighted the role of tax policy in shaping the automobile sector and stressed the need for predictability in GST to support long-term industry planning.

Diego Graffi, Chairman and Managing Director, Piaggio Vehicles Pvt. Ltd., said, “The new GST framework is a crucial step towards creating a more balanced and transparent tax structure, benefitting not only OEMs but also enabling consumers to better understand pricing. The reduction of GST rates on two-wheelers below 350cc will improve accessibility for a wider base of consumers and further support demand growth. While the revised rates for premium segments should be reconsidered to ensure that the framework overall reflects a clear intent to establish simplicity and consistency across categories."

Sidharth Bhushan Khurana – Managing Director, STUDDS Accessories, said, "The recent rationalisation by the GST Council is expected to act as a catalyst for demand in the two-wheeler industry, particularly in the entry-level motorcycle segment. This move not only makes mobility accessible and affordable for a wider consumer base but also unlocks fresh opportunities for growth across the value chain, from manufacturers and OEMs to component suppliers and accessory makers like us. At STUDDS, we see this as a positive step that will further strengthen the ecosystem, encourage first-time buyers, and accelerate the overall momentum of the industry."