GST since 22 September 2025
Small cars, motorcycles up to 350cc and three-wheelers moved from 28% to 18%; all auto parts pay a uniform 18%. EVs pay 5%, against 18% or 40% for conventional vehicles (PIB, 56th GST Council, Sep 2025). SIAM credits the GST 2.0 reforms and repo rate cuts for the record sales in every vehicle segment in FY2025-26.
| Item | GST from 22 Sep 2025 |
|---|---|
| Small cars, motorcycles up to 350cc, three-wheelers | 18% (was 28%) |
| Auto parts | Uniform 18% |
| Electric vehicles | 5% |
| Other conventional vehicles | 18% or 40% |
Customs on imported cars
Press reports put duty on imported cars at 70%, or 110% where the price exceeds USD 40,000 (Autocar India, January 2026). SPMEPCI offered 15% duty on e-4W imports to makers investing ₹4,150 crore but drew no applications by its October 2025 deadline (PIB, SPMEPCI guidelines, Jun 2025), so the standard rates apply outside the trade-agreement quotas below.
UK and EU trade agreements
| Agreement | Status | Cars into India | EVs |
|---|---|---|---|
| India–UK CETA | In force 15 July 2026 | In-quota duty on UK petrol and diesel cars starts at 30–50% (against up to 110% outside the quota) and falls to 10% by year five | No cut for five years |
| India–EU FTA | Agreed 27 January 2026; not yet in force | 10% for 250,000 cars a year (duty on EU cars to fall from 110%) | Cuts only after five years |
Quota certificates. CETA rates need a DGFT tariff-rate quota (TRQ) certificate, valid 12 months and not transferable, and a UK certificate of origin; only OEMs and their authorised dealers may apply (Business Standard, Jul 2026).
Export access. Under the UK CETA, India-built electric, hybrid and hydrogen vehicles priced GBP 20,000–80,000 enter the UK duty-free within a quota from year six; the quota rises to 88,000 vehicles by year 15 (Autocar Professional, 17 Jun 2026). The general treatment of India’s agreements is on trade agreements.
Budget 2026-27 customs changes
- Battery and cell inputs. The customs exemption on capital goods for lithium-ion cell plants now also covers cells for energy storage (from 2 February 2026). Exemptions for lithium-ion cells for EV and hybrid battery packs, and for cell-making inputs, run to 31 March 2028.
- Critical minerals and rare earths. Budget 2026-27 announced a customs duty exemption on capital goods for processing critical minerals in India, and dedicated Rare Earth Corridors in Odisha, Kerala, Andhra Pradesh and Tamil Nadu (Budget Speech and Memorandum 2026-27). Operating details for the corridors are awaited.
See Budget 2026-27 and the 2026 Act for the cross-sector measures.
Zones and parks
The automotive brochure names no sector-specific tax zone. The locations it names are state industrial parks: the SIPCOT Industrial Park at Thoothukudi in Tamil Nadu, the Bidkin industrial area and six Ultra Mega Industrial Parks in Maharashtra, and the Rare Earth Corridors announced in the Budget. Their benefits come through the state packages on state incentives, not through a separate tax regime.
Corporate tax at a glance
Rates for tax year 2026-27, the first year under the Income-tax Act 2025, which replaced the 1961 Act from 1 April 2026. Effective rates add surcharge and the 4% health and education cess. Treaty rates can be lower where treaty conditions are met. Effective rate = base rate × (1 + surcharge) × 1.04.
| Tax | Rate or rule | Note |
|---|---|---|
| Corporate tax: concessional regime (s.200) | 22% + 10% surcharge + 4% cess = 25.168% effective, whatever the level of income | Optional for any Indian company, including a foreign-owned subsidiary. Most deductions and exemptions are given up; MAT does not apply. |
| Corporate tax: normal regime | 30%, or 25% if turnover in FY2024-25 was up to ₹400 crore. Surcharge 7% on income above ₹1 crore, 12% above ₹10 crore; 4% cess | Top effective rate 34.944% (30% band). Deductions and incentives remain available, but MAT applies. |
| Foreign company: branch or permanent establishment | 35% on income other than special-rate income. Surcharge 2% on income above ₹1 crore, 5% above ₹10 crore; 4% cess | Effective 36.40% (income up to ₹1 crore), 37.128% (₹1–10 crore), 38.22% (above ₹10 crore). |
| Minimum alternate tax (MAT, s.206) | 14% of book profit (was 15%) from tax year 2026-27; a final tax for companies in the old regime, with no new MAT credit | Credit built up to 31 March 2026 is usable only after moving to the new regime, up to 25% of the year’s tax (domestic companies). |
| 15% regime for new manufacturing companies (s.201) | Closed to new entrants: only companies that began manufacturing or production by 31 March 2024 qualify | Budget 2026-27 left corporate tax rates unchanged (only the MAT rate was cut) and added no replacement regime; new manufacturers compare s.200 with the normal regime. |
| Dividends paid to a non-resident parent | 20% withholding under domestic law, plus surcharge and cess | Taxed in the shareholder’s hands. Treaties can reduce withholding on dividends, interest, royalties and technical fees, subject to treaty conditions. |
For a new vehicle or component plant, the closure of the 15% regime is the main point: the choice is now between the 25.168% concessional rate and the normal regime with deductions and MAT.
Withholding, capital gains, buy-backs, GST and transfer pricing
Domestic-law rates for tax year 2026-27, before surcharge and cess unless stated. The applicable treaty may reduce withholding where its conditions are met.
| Tax | Rate or rule | Note |
|---|---|---|
| Royalties and fees for technical services | 20% on payments to a foreign company, plus surcharge and cess | A lower treaty rate may apply, subject to treaty conditions. |
| Capital gains of non-residents: listed shares | Short-term (s.196): 20%. Long-term (s.198): 12.5% on gains above ₹1.25 lakh | Plus surcharge and cess. Treaty exemptions are open to challenge under GAAR (Tiger Global, January 2026). |
| Capital gains of non-residents: unlisted shares | Long-term: 12.5%. Short-term: at the rate for other income, 35% for a foreign company | Plus surcharge and cess; treaty relief subject to treaty conditions. |
| Share buy-backs | Taxed as capital gains in the shareholder’s hands from 1 April 2026, no longer as dividend | Promoters pay an additional tax on buy-backs under s.68 of the Companies Act 2013. It takes long-term gains, and short-term gains on listed shares, to 22% where the promoter is an Indian company and 30% for any other promoter, including a foreign parent (before surcharge and cess). |
| GST (from 22 September 2025) | Two main rates, 5% (merit) and 18% (standard), plus 40% for a select few goods and services | Approved by the 56th GST Council on 3 September 2025. Tobacco products were initially kept on earlier rates and compensation cess. |
| Transfer-pricing safe harbour: IT services | 15.5% operating margin on cost for software, ITeS, KPO and contract R&D, for taxpayers within the ₹2,000 crore eligibility threshold (raised from ₹300 crore) | Budget 2026-27; notified with the 2026 rules. Approval is automated and the option can run for five years. |
Royalty and technical-fee withholding is relevant where a foreign parent licenses technology to its Indian subsidiary or joint venture. The safe harbour covers contract R&D, which may apply to automotive engineering R&D centres.
For the full cross-sector treatment see corporate tax, withholding and capital gains, GST and customs and transfer pricing.
What to check next
- Confirm the current customs rate for your vehicle’s price band and whether CETA or the EU FTA quota applies; the EU agreement is not yet in force.
- If importing under CETA, plan the DGFT TRQ certificate (valid 12 months, not transferable) and UK certificate of origin through an OEM or authorised dealer.
- Check whether your cell-making inputs and capital goods fall within the Budget 2026-27 exemptions that run to 31 March 2028.
- Choose between the s.200 concessional rate and the normal regime once incentive and deduction values are known.
- Price royalties and technical fees to the Indian entity against treaty rates and transfer pricing rules.