New Delhi, August 5, 2025 – The Indian government is reaping significant revenue from the Goods and Services Tax (GST) imposed on high-end cars, with luxury vehicles contributing substantially to the national exchequer. As the demand for premium and luxury cars continues to grow, the GST framework, combined with a compensation cess, is generating an estimated ₹15,000–20,000 crore annually from this segment alone, according to industry analysts.
High-end cars, including luxury sedans, SUVs, and supercars with engine capacities exceeding 1500cc and lengths over 4000mm, attract a GST rate of 28%, the highest tax slab. Additionally, a compensation cess of up to 22% is levied, pushing the effective tax rate to as high as 50%. For instance, a luxury SUV with an ex-showroom price of ₹75 lakh incurs approximately ₹37.5 lakh in taxes, while ultra-luxury models like the Bugatti Veyron, priced at ₹12 crore, contribute around ₹6 crore per unit in GST and cess.
The luxury car market, comprising brands like Mercedes-Benz, BMW, Audi, and Land Rover, has seen robust growth, with an estimated 40,000–50,000 units sold annually in India. This represents a small but lucrative segment of the 4-million-unit passenger vehicle market in 2024. The high tax rates on these vehicles are designed to bolster government revenue while discouraging excessive consumption of luxury goods. “The GST structure on high-end cars ensures significant revenue for both central and state governments, supporting infrastructure and welfare initiatives,” said a senior official from the Ministry of Finance.
The introduction of GST in 2017 replaced a complex web of taxes, including excise duty and VAT, which ranged from 26.5% to 44%. The unified tax regime has streamlined collections and reduced the overall tax burden for some vehicle categories, but luxury cars remain heavily taxed due to the additional cess. Imported Completely Built Units (CBUs), such as high-end supercars, face even higher taxes, with Integrated GST (IGST) and customs duties pushing the tax burden further. For example, a ₹5 crore imported luxury car could incur ₹1–2 crore in additional taxes.
Despite the high tax rates, the luxury car market remains resilient, driven by rising disposable incomes and aspirational buyers. However, industry leaders have occasionally voiced concerns. In 2017, Mercedes-Benz India’s CEO highlighted that the high cess could deter sales, potentially impacting revenue. Yet, the market’s growth suggests buyers are willing to absorb the costs, with brands like Lamborghini and Rolls-Royce reporting strong demand.
The GST revenue from high-end cars is split between the Central Government (CGST) and State Governments (SGST), with the compensation cess allocated to a fund to offset state revenue losses. While exact figures for 2025 are yet to be released, the overall GST collection for FY 2024–25 reached ₹21.36 lakh crore, with April 2025 alone recording ₹2.36 lakh crore, a 12.6% year-on-year increase, according to the Ministry of Finance. The luxury car segment’s contribution, though a fraction of this total, underscores its importance as a high-value revenue stream.
As India’s economy grows and the luxury car market expands, the government’s tax strategy continues to balance revenue generation with economic incentives. Electric vehicles (EVs), taxed at just 5% GST, are being promoted to encourage sustainable mobility, while high-end petrol and diesel vehicles bear the brunt of higher taxes. For consumers eyeing their dream supercar, the price of luxury comes with a hefty tax bill, but for the government, it’s a win-win, fueling both fiscal growth and policy objectives.
Sources: Ministry of Finance, GST Council data, industry estimates.
