GST on Bikes/Two Wheelers 2025

Introduction

For years, the Indian two-wheeler industry has been demanding a tax cut. It always seemed unfair that a humble 100cc commuter bike used by a daily wage earner was taxed at the same 28% luxury rate as a high-end sports car. In 2025, the government finally listened, but with a twist that has shaken up the market.

The GST Council has introduced a major overhaul in the tax structure for two-wheelers, effective from September 22, 2025. This "GST Reform 2.0" has created a clear divide between essential mobility and luxury biking. While the common man rejoices with a significant price drop on smaller bikes, the premium segment faces a steeper climb.

If you are planning to buy a scooter for your family or a superbike for your weekend rides, your budget calculations need to change today. In this guide, we will break down the new split rates of 18% versus 40%, the unchanged status of electric vehicles, and how the removal of the old Compensation Cess impacts your final on-road price.

Similar Read: GST rates in 2025

Table of Contents

1. The Major Shift: From Flat Rate to Split Rates
2. New GST Rate for Bikes up to 350cc (The Commuter Segment)
3. New GST Rate for Bikes above 350cc (The Premium Segment)
4. Electric Two-Wheelers: The Green Advantage Continues
5. What Happened to the Compensation Cess?
6. Impact on On-Road Prices: A Practical Calculation
7. Input Tax Credit (ITC) on Two-Wheelers for Businesses
8. GST on Bike Insurance and Accessories
9. Second-Hand Bikes: Is GST Applicable?
10. FAQs

The Major Shift: From Flat Rate to Split Rates

Until mid-2025, almost every petrol two-wheeler was taxed at a flat 28% GST, with an additional 3% cess on larger engines. This meant a 100cc bike and a 500cc cruiser were treated relatively similarly by the taxman.

The 2025 reform has changed this philosophy. The government now classifies two-wheelers based on Engine Capacity (cc).

• Below 350cc: Treated as "Essential Goods."
• Above 350cc: Treated as "Luxury/Sin Goods."

This shift aims to make personal mobility affordable for the masses while collecting higher revenue from those who buy bikes for leisure or passion.

New GST Rate for Bikes up to 350cc (The Commuter Segment)

This is the headline news of the year. The GST rate for motorcycles and scooters with an engine capacity of up to 350cc has been slashed from 28% to 18%.

Which bikes are covered?

This covers nearly 98% of the Indian two-wheeler market, including:

• Entry-level commuters (100cc-110cc).
• Executive commuters (125cc-150cc).
• Popular sports commuters (160cc-200cc).
• Most scooters (Activa, Jupiter, Access).
• Entry-level retro bikes (Classic 350, Hunter 350).

Impact:

Manufacturers like Hero, Honda, Bajaj, and TVS have already announced price cuts. A bike that earlier had an ex-showroom price of ₹1 Lakh (inclusive of 28% tax) will now see a reduction of roughly 8-10% in the final price, making it significantly more affordable.

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New GST Rate for Bikes above 350cc (The Premium Segment)

While commuters celebrate, biking enthusiasts have taken a hit. Motorcycles with an engine capacity exceeding 350cc are now placed in the highest tax slab of 40%.

Which bikes are covered?

• Mid-weight performance bikes (KTM 390, Dominar 400).
• Premium cruisers (Super Meteor 650).
• Superbikes (Kawasaki, Triumph, Harley Davidson, Ducati).

The Calculation Change:

Previously, these bikes attracted 28% GST + 3% Cess = 31%.

Now, they attract a flat 40% GST.

This 9% direct jump in tax liability has increased the ex-showroom prices of premium bikes by ₹15,000 to ₹50,000, depending on the model.

Electric Two-Wheelers: The Green Advantage Continues

Amidst the fluctuations in petrol bike taxes, the government has kept its promise on green mobility.

The GST rate for Electric Two-Wheelers remains unchanged at a rock-bottom 5%.

Whether it is a low-speed scooter or a high-performance electric motorcycle, the rate is 5%.

• Comparison: A ₹1.5 Lakh petrol bike (160cc) attracts 18% tax (₹27,000 approx). A ₹1.5 Lakh electric scooter attracts only 5% tax (₹7,500 approx).

This huge tax differential continues to make EVs the most cost-effective option for city commuting.

What Happened to the Compensation Cess?

One of the most complex parts of the pre-2025 regime was the "Compensation Cess." It was a temporary levy to compensate states for revenue loss.

• Old Regime: 28% GST + 3% Cess for big bikes.
• 2025 Regime: The Compensation Cess has been abolished for vehicles.

Instead, the government has simply merged the cess into the main GST rate. That is why the rate for big bikes jumped to 40% directly. This simplifies the invoice structure—you will no longer see a separate "Cess" line item on your bike bill.

Impact on On-Road Prices: A Practical Calculation

Let's see how this affects your wallet with a real-world example.

Scenario 1: Buying a 125cc Scooter (Base Price ₹80,000)

• Old Tax (28%): ₹22,400. Total = ₹1,02,400.
• New Tax (18%): ₹14,400. Total = ₹94,400.
• Savings: ₹8,000.

Scenario 2: Buying a 390cc Sports Bike (Base Price ₹2,50,000)

• Old Tax (31%): ₹77,500. Total = ₹3,27,500.
• New Tax (40%): ₹1,00,000. Total = ₹3,50,000.
• Extra Cost: ₹22,500.

Note: Road Tax and Insurance are calculated on the Ex-Showroom price. A lower ex-showroom price for small bikes also means slightly lower road tax and insurance premiums.

Input Tax Credit (ITC) on Two-Wheelers for Businesses

Can a business owner claim credit for the GST paid on a bike?

General Rule: No. Section 17(5) blocks ITC on motor vehicles used for passenger transport.

Exceptions:

You CAN claim ITC if the bike is used for:

1. Further Supply: If you are a bike dealer, selling the bike.
2. Transportation of Goods: E.g., a delivery bike fitted with a cargo box.
3. Driving School: Providing training on driving.

If you buy a bike for your delivery staff (e.g., for a pizza outlet), you can claim the ITC. With the rate now at 18% for small bikes, the credit blocked (or available) is lower, improving cash flow.

GST on Bike Insurance and Accessories

While the bike tax has changed, the ancillary costs remain taxed at standard rates.

1. Two-Wheeler Insurance: Taxed at 18%. This applies to both Third-Party and Comprehensive premiums.
2. Helmets: Taxed at 18% (Safety gear gets a lower slab).
3. Spare Parts: Most engine parts, tires, and accessories are taxed at 28%. Interestingly, buying a part loose (28%) is now more tax-heavy than buying the whole small bike (18%).

Second-Hand Bikes: Is GST Applicable?

If you buy a used bike from an individual (like your neighbor), there is No GST.

However, if you buy from a registered Second-Hand Dealer (like a managed marketplace), GST is applicable.

• Rate: 12% for small bikes, 18% for big bikes.
• Valuation: Tax is charged only on the Dealer's Margin (Sale Price minus Purchase Price), not on the full value of the bike.