Imported cars cost more in India mainly because customs duty is charged first, then import IGST and any applicable cess are calculated on a value that already includes customs duty and customs cess. Freight, insurance, compliance, distribution and the seller’s commercial margin are added after that. The exact bill depends on the car’s tariff classification, complete-built or kit form, new or used status, customs value, specifications, country of origin and the notifications in force for that shipment.
What makes an imported car expensive?
There is no single “import tax” that applies identically to every car. A shipment moves through several layers:
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- Customs valuation: Customs determines the assessable value, generally starting with the transaction value when statutory conditions are met. Transport and insurance and other specified costs can be included under section 14 of the Customs Act, 1962.
- Basic customs duty (BCD): The rate depends on the vehicle’s tariff entry and import form.
- Additional customs levies: A vehicle may attract the Agriculture Infrastructure and Development Cess (AIDC), Social Welfare Surcharge (SWS), or another levy under the applicable notification.
- Import GST: IGST is charged after the relevant customs duties and customs cess have been added to the import value.
- Non-tax costs: Port handling, inland transport, homologation, registration, warranty provision, distribution and the importer’s pricing are separate from the tax calculation.
Because later taxes use a tax-inclusive base, adding headline percentages to the overseas sticker price will not produce a reliable Indian landed price. The Central Board of Indirect Taxes and Customs (CBIC) states in its GST FAQ, answer 53: “IGST and GST compensation cess shall be paid after adding all customs duty and customs cess to the value of imports.”
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CBIC Notification No. 45/2025–Customs, dated 24 October 2025, gives different heading 8703 rates for specified new passenger-car import forms. The notification also sets conditions for the relevant kit categories, so a shipment cannot be called qualifying completely knocked-down (CKD) merely because some parts are shipped separately.
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| Import form described in the notification | BCD shown for the specified category | Important condition |
|---|---|---|
| Specified CKD kit | 15% | Engine, gearbox and transmission mechanism are not pre-assembled. |
| Specified kit with limited pre-assembly | 35% | One of those components is pre-assembled, but it is not mounted on a chassis or body assembly. |
| Vehicles imported in other forms | 70% | Falls under the notification’s “other forms” treatment, subject to its value, engine and subcategory wording. |
These are tariff categories, not a promise that every kit shipment receives the lowest rate. The customs officer must match the actual packing, assembly state, vehicle description and supporting documents to the notification. The same notification contains separate wording for electric vehicles and scheme-specific treatment, so an electric model should not be assigned a petrol or diesel entry by assumption.
Why a 70% headline rate is still not the final bill
BCD is only one stage. Customs may add AIDC or another levy, and import IGST is then calculated on the prescribed base. That base includes the customs value plus customs duty and customs cess, rather than just the manufacturer’s overseas price. A tax rate therefore compounds the amount on which the next tax is assessed.
Keep these abbreviations separate:
- BCD: Basic customs duty, the principal tariff charge on the imported vehicle.
- AIDC: Agriculture Infrastructure and Development Cess, an additional customs levy applied to specified categories.
- SWS: Social Welfare Surcharge. Its treatment can be nil or otherwise specified by the applicable measure.
- IGST: Integrated Goods and Services Tax collected on imports.
- GST compensation cess: A separate cess where the current GST law and vehicle category prescribe it.
Do not add these percentages as if all were charged independently on the same number. The correct order is to establish the customs value, apply the relevant customs duties and cess, then calculate import IGST and any applicable compensation cess on the legally prescribed base.
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What the February 2025 budget changed
The Union Budget 2025–26 customs-duty explanatory document describes a targeted change effective 2 February 2025. It is not a universal rate for all imported cars.
| Category identified in the budget document | BCD | AIDC | SWS |
|---|---|---|---|
| New completely built passenger cars above US$40,000 CIF | 70% | 40% | Nil |
| Used motor vehicles | 70% | 67.5% | Nil |
CIF means cost, insurance and freight for the customs threshold. The budget document says existing effective rates on other heading 8703 categories were not changed by that measure. AIDC is an additional customs levy; it does not replace the subsequent import GST layer. A new car below the stated CIF threshold, a qualifying CKD kit, an electric vehicle or a vehicle covered by preferential origin treatment may therefore have a different customs outcome.
GST rates after the September 2025 change
The GST Council FAQ published by the Press Information Bureau says revised goods rates took effect on 22 September 2025. It replaced older summaries that describe passenger cars as universally subject to 28% GST plus compensation cess. Apply the current category definitions, not a pre-September-2025 chart.
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| Vehicle category in the FAQ | GST rate stated | Definition or qualification |
|---|---|---|
| Small petrol, LPG or CNG car | 18% | Engine capacity up to 1,200 cc and length up to 4,000 mm. |
| Small diesel car | 18% | Engine capacity up to 1,500 cc and length up to 4,000 mm. |
| Mid-size or large car | 40% | Exceeds 1,500 cc or exceeds 4,000 mm in length, as classified under the current schedule. |
| Qualifying utility vehicle | 40% | Engine above 1,500 cc, length above 4,000 mm and ground clearance of at least 170 mm; the FAQ states this rate applies without compensation cess. |
| Vehicles designed to transport ten or more people | 18% | Subject to the exact tariff and classification wording. |
Engine size, length, ground clearance, fuel type and body classification must be verified from the vehicle’s approved specifications and the current notification. A car that looks like a small crossover may not meet the utility-vehicle definition, and an overseas trim can have specifications that differ from the Indian homologated version.
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How customs calculates the assessable value
Section 14 of the Customs Act, 1962, provides the valuation framework. Customs generally begins with the transaction value—the price actually paid or payable—when the statutory conditions are satisfied. The valuation can also include specified additions such as transport and insurance to the place of importation. Related-party transactions, assists, royalties, commissions or documentation issues can require further examination.
For a vehicle, “the price on the foreign website” is therefore not automatically the customs value. The invoice, freight contract, insurance, payment records, any discounts and the relationship between buyer and seller can matter. A low invoice that does not reflect the statutory valuation rules may be questioned, while a high-value option package can affect the declared transaction value.
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Step-by-step: work out the applicable import taxes
- Identify the tariff heading and vehicle status. Confirm that the shipment is a passenger car under heading 8703, then record whether it is new or used, petrol, diesel, electric or another fuel type.
- Record the import form. Describe whether it is a complete vehicle, a specified CKD kit or another form. For a kit, document the assembly state of the engine, gearbox and transmission and whether any component is mounted on a chassis or body assembly.
- Establish customs value. Gather the commercial invoice, freight, insurance and other valuation documents. Check whether the CIF amount crosses a threshold such as US$40,000 in the budget measure.
- Check origin. Country of origin can affect preferential duty or an anti-dumping measure. Origin is different from the country from which the vehicle was shipped.
- Check the live tariff and notifications. Use the ICEGATE “Know your Import Duty Enquiry System,” entering a tariff heading or a detailed description and, where relevant, the country of origin. Confirm the result against the current notification rather than relying on a generic calculator.
- Apply BCD and customs cess. Use the rate for the exact form, value band, engine or vehicle subcategory. Add AIDC, SWS or another levy only when the applicable entry requires it.
- Calculate import IGST and compensation cess. Follow the prescribed tax base after customs duty and customs cess have been added. Apply the GST category that matches the vehicle’s current specifications.
- Add non-tax charges. Include port and clearance fees, inland freight, inspection, homologation, registration, insurance, warranty and the importer’s commercial margin to reach an on-road price.
This sequence explains why a calculator that multiplies an overseas price by one “import duty” percentage can be materially wrong.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why two imported cars can have very different tax bills
When comparing models, hold the variables apart instead of comparing badge prices alone:
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- New versus used: The 2025 budget document identifies a separate used-vehicle AIDC treatment.
- CIF value: A US$40,000 threshold in the selected new-CBU measure depends on customs value, not an internet list price.
- Engine, dimensions and body type: These determine the post-September-2025 GST category and, for utility vehicles, the ground-clearance test.
- Origin: A trade agreement or another origin-based measure can change the duty outcome.
- Notification date: Rates and definitions can change, so an old import from one year cannot be used as the legal rate for a later shipment.
Common mistakes and how to avoid them
“Every imported car has 70% BCD”
Incorrect. The 70% treatment applies to specified categories, including vehicles imported in forms covered by the relevant notification and selected high-value new CBU and used-vehicle cases in the 2025 budget document. CKD entries and other categories can differ.
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“CKD automatically means low duty”
Incorrect. The notification requires particular component and assembly conditions. Ask the importer for the exact tariff entry and the documents proving that the kit meets it.
“I can add all the percentages”
Incorrect. IGST and compensation cess follow the customs-duty additions to the import value. Use the statutory base and sequence.
“The old 28% GST plus cess table is current”
Outdated for the post-22 September 2025 goods-rate structure. Recheck the current GST schedule and vehicle definitions.
“Customs duty equals the final retail premium”
Not necessarily. Freight, port handling, compliance engineering, testing, distribution, warranty reserves, financing and commercial pricing can all raise the final price. No official market-wide average was identified for the share attributable to taxes, so a percentage should not be presented as an average showroom premium.
What to request before paying an importer
- A written tariff classification and the notification entry used.
- Whether the car is CBU, a qualifying CKD kit or another form, with assembly details.
- The proposed customs value and a breakdown of freight and insurance.
- New or used status, country of origin and any preferential-duty claim.
- Separate line items for BCD, AIDC, SWS, IGST, compensation cess and non-tax charges.
- The GST vehicle category, including engine capacity, length and, where relevant, ground clearance.
- Confirmation that the calculation was checked against the current ICEGATE enquiry and notifications.
If any of these items is missing, the quote is an estimate rather than a shipment-specific landed-cost calculation.
The Bottom Line
Imported cars are expensive in India because customs duty can be high and import IGST is charged after customs duty and customs cess are added to the value. The actual amount is vehicle-specific: verify the import form, customs value, origin, specifications and current notifications before treating any percentage as a final price.
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