“Small Cars, Smaller Taxes – India shifts gears with Modi’s GST reform!”

A graphic showing a red small car with a G.S.T. tag, alongside text stating 'GST Rate Cut on Small Cars as Modi Reforms Spur Stock Market' and an upward trending graph.

Present Legal Position

  1. GST on Cars
    • As per Notification No. 1/2017-Central Tax (Rate) dated 28.06.2017 (as amended), cars attract GST at 28%, along with an additional Compensation Cess (ranging from 1% to 22% depending on engine capacity, length, and type of car).
    • Small petrol cars (engine capacity ≤1200 cc and length ≤4m) attract 28% GST + 1% cess.
    • Small diesel cars (engine capacity ≤1500 cc and length ≤4m) attract 28% GST + 3% cess.
    • Larger and luxury cars attract 28% GST + higher cess up to 22%.
  2. GST on Insurance
    • As per Notification No. 11/2017-Central Tax (Rate) (Services rate notification), insurance services including life insurance, health insurance, motor insurance are taxed at 18% GST.
    • There are certain exemptions under Notification No. 12/2017-Central Tax (Rate), e.g., government health schemes, group insurance schemes for specific sectors, etc., but general life and health insurance premiums are taxable.

On the Proposed Reform in News

  • Its a policy proposal to restructure GST slabs to 5% and 18% only, abolishing the 28% slab, and taxing only a few “sin goods” at 40%.
  • The proposal to reduce small cars to 18% and to cut GST on insurance premiums to 5% or Nil is not yet law.
  • As per the Constitution (Article 279A) and Section 9 & Section 11 of CGST Act, 2017, such changes can only come into effect after GST Council recommends and Government issues notifications. Until then, the current rates remain applicable.

Practical Implication

  • At present:
    • Small cars → 28% GST + 1%/3% cess.
    • Life/Health insurance → 18% GST.
  • Proposed (if approved by GST Council in October as reported):
    • Small cars → 18% GST only (cess possibly removed).
    • Insurance → 5% or exempt.

Until official notifications are issued, businesses and taxpayers must continue compliance at existing rates.

✅ Conclusion:
The reduction of GST on small cars and insurance is currently a proposal and has no legal force unless ratified by the GST Council and notified by the Government under Section 9 (for levy) and Section 11 (for exemption) of the CGST Act, 2017. Presently, cars and insurance continue to attract GST at existing rates.