Is GST applicable on the purchase of used two-wheelers?

Yes. GST on two-wheeler is applicable irrespective of whether the vehicle is new or used. As of January 16, 2025, GST on the sale of all used vehicles (including two-wheelers and EVs) by registered dealers is a uniform 18% on the profit margin, while private individual sales usually do not attract GST.

Does GST affect the on-road price of a bike?

Yes. Since goods and services tax is a part of the ex-showroom price of a bike, it heavily influences its on-road price.

Are scooters and motorcycles taxed at the same rate?

The rate of GST on two-wheeler s is dependent on the capacity of the engine. This essentially means that a scooter and a motorcycle with the same engine capacity would be taxed at the same rate.

Is GST included in a two-wheeler’s ex-showroom price?

Yes. The ex-showroom price of a two-wheeler includes the cost to the manufacturer, dealer’s commission, and GST.

Is GST applicable on bikes that are imported into India?

Yes. Goods and Services Tax will be levied on imported bikes in addition to other taxes like customs duty. The bike GST rates applicable, however, will depend on the engine capacity of the imported vehicle.

What is the GST rate on two-wheelers in India?

The GST on 2-wheelers depends on the engine capacity. Two-wheelers below 350 cc attract 18% GST, whereas vehicles above 350 cc attract 40% GST. Electric two-wheelers are subject to a concessional 5% rate, making them much cheaper to buy.

Can I claim ITC on a bike bought for business?

Yes, GST on a 2-wheeler can be claimed as Input Tax Credit if the bike is used for taxable business purposes. e.g., passenger transport, resale, or training. Personal-use vehicles are not covered under the ITC.

Is GST applicable to bike loans or EMIs?

GST is not applicable to the loan principal. However, an 18% GST is charged on processing fees and interest charged by the bank or NBFC.

Are electric bikes cheaper because of lower GST?

Yes, the reason why electric bikes are cheaper is mostly that the GST on 2-wheeler electric vehicles is only 5% while in the case of petrol bikes, it is much more. This lower tax, along with subsidies and lower running costs, caused a lower total cost of ownership.

GST on Bikes and Two Wheeler: Tax Rates, Impacts

Introduced in 2017, the goods and services tax (GST) simplified and standardised India's entire indirect tax system. Except for a few exempt categories, GST is levied on all goods and services, including two-wheelers. If you are a prospective two-wheeler buyer, understanding the implications of GST on bikes is crucial since it influences the overall cost of the vehicle.

In this article, we will delve into the concept of GST for bikes, explore the various bike GST rates, and understand its impact so that you can make informed choices.

Key Takeaways

GST on two-wheelers stands at 18% for engines less than 350cc and 40% for engines above 350cc in size.

Electric two-wheelers attract only 5% GST, which is much lower than that for petrol bikes.

Two-wheeler insurance has 18% GST, which directly affects the on-road prices.

Input Tax Credit under GST is limited to business use cases only.

GST on Two-Wheelers: An Overview

Two-wheelers like scooters and motorcycles are the primary mode of transport in India. Given their significant role in daily commuting, the government decided to bring them within the ambit of the goods and services tax regime. The levy of GST on two-wheelers ensures transparent and uniform taxation, simplifying the process for both manufacturers and consumers.

The GST on two-wheelers is included as part of the vehicle’s ex-showroom price. This price also includes the cost of manufacturing, distribution margins, dealer commissions, and other expenses. Once GST is applied, additional charges like road tax, insurance, and registration fees further determine the vehicle’s on-road price.

Rates of GST on Two-Wheelers

GST for bikes and scooters is applicable for both new and used vehicles. The rate of tax, however, is solely based on the engine capacity and not on the bike’s condition. Here is a table outlining the various scooter and bike GST rates.

Two-Wheeler Engine Capacity	GST Rate
Two-wheelers with an engine capacity of less than 350cc	18%
Two-wheelers with an engine capacity of more than 350cc	40%
Electric two-wheelers	5%

As you can see, the rate of GST on two-wheelers with conventional internal combustion engines is much higher compared to the rate applicable for electric vehicles (EVs). With the reduced GST rate of 5%, the government aims to make EVs more accessible, reduce dependence on fossil fuels, and address environmental concerns.

As a prospective buyer, you will also have to pay GST on two-wheeler insurance when purchasing a bike or scooter, seeing as it is mandatory as per the Motor Vehicles Act. The rate of GST on two-wheeler insurance is currently 18%.

GST on Bikes: An Example

To understand how GST for bikes impacts its prices, let us consider this hypothetical example.

Assume you wish to purchase a 400cc motorcycle. The following is the cost breakdown of the bike before the levy of GST.

Cost to the manufacturer - ₹1,80,000

Transportation charges - ₹8,000

Dealer’s commission - ₹20,000

Total cost of the vehicle before GST - ₹2,08,000

Since the bike’s engine capacity exceeds 350cc, it is classified as a luxury item under GST Reform 2.0 and attracts a 40% GST rate. The ex-showroom price of the vehicle would be as follows:

Ex-showroom price = Total cost of the vehicle before GST + (Total cost of the vehicle before GST x 40%)
Ex-showroom price = ₹2,08,000 + (₹2,08,000 x 40%)

Ex-showroom price = ₹2,08,000 + ₹83,200 =₹2,91,200

To determine the on-road price, additional costs like road tax, insurance, and registration fees must be added to the ex-showroom price. Here is a breakdown of the additional costs.

Road tax - ₹12,680

Registration fee - ₹10,000

Insurance - ₹26,000 (inclusive of 18% GST on two-wheeler insurance, amounting to ₹4,000)

Total additional costs - ₹48,680

Now, we can arrive at the final on-road price of the motorcycle by adding the above additional costs to its ex-showroom price.

On-road price = Ex-showroom price + additional costs

On-road price = ₹2,91,200 + ₹48,680

On-road price = ₹3,39,880

For a motorcycle costing ₹3,39,880 on-road, you would have paid a total GST of ₹87,200 (₹83,200 on the bike + ₹4,000 on the insurance).

Also Read: What is GST and Types of GST?

Input Tax Credit (ITC) on GST on Two-Wheelers

Input tax credit (ITC) is a unique mechanism under the goods and services tax regime that allows registered businesses to reduce their tax liability by setting off the GST they pay on inputs from the GST payable to the government.

However, when it comes to GST on bikes and scooters, the applicability of ITC depends on whether you satisfy any of the following conditions:

You use the two-wheeler to transport passengers or as public transport.

You are not the end user and intend to supply the two-wheelers to other customers.

You use the two-wheeler as a training vehicle to teach individuals.

If you satisfy any of the above-mentioned conditions and are registered under the GST tax regime, you can claim the input tax credit on GST for bikes.

Impact of GST on Two-Wheelers

The levy of GST on bikes and scooters impacts the various stakeholders differently.

For buyers, goods and services tax on two-wheelers adds transparency to pricing but also increases the cost, especially for vehicles with engine capacities exceeding 350cc. However, the reduced bike GST rates for electric vehicles make them an attractive alternative for cost-conscious and environmentally aware consumers.

For the government, meanwhile, GST on two-wheelers ensures consistent revenue generation, considering the high level of demand for the vehicles. And finally, uniform bike GST rates ensure streamlined taxation for manufacturers. However, with high-capacity two-wheelers being taxed more heavily, manufacturers could face lower demand for the vehicles in this segment.

GST Rates on Motorbikes After Reform 2.0

The new GST regime provides clear categorisation for motorbikes based on engine capacity, which has brought in significant price changes across various segments and will affect both mass market and premium buyers.

Motorcycles and scooters up to 350cc: Taxed at the reduced GST rate of 18% which eases the prices for the popular mid-capacity models.

Motorcycles that are above 350cc: These are considered luxury vehicles and attract 40% GST, which significantly adds to the cost of high-end bikes.

Electric two-wheelers: Reinforce the support for electric mobility with a concessional 5% GST for the electric two-wheelers.

Impact of GST Reform 2.0 on ITC for Two-Wheelers

While there are no deviations in the framework for input tax credit (ITC), GST reform 2.0 has made some changes to the quantum of ITC available because of changes in tax slabs:

Businesses using entry-level two-wheelers: Commercial use of bikes below 350cc will now be allowed ITC at 18%, reducing the cost of upfront taxation as compared to the previous rate of 28%.

Businesses that use high-capacity bikes: Motorcycles above 350cc that are used for business purposes attract 40% GST and therefore allow for higher ITC claims without the need to calculate cess separately.

Conclusion

As a prospective buyer, understanding GST on bikes is essential to make effective and informed purchase decisions. If you are looking to lower the impact of the two-wheeler purchases on your finances, opting for an electric vehicle could be the solution, especially if you have access to charging infrastructure. The lower bike GST rate on EVs can not only help you lower the cost of investment but also help you stay environmentally conscious. Furthermore, by opting for electric two-wheelers, you may also be able to take advantage of state-level subsidies and lower operational costs.

GST on Bikes and Two Wheeler