GST on Bikes and Two-Wheelers in India

India’s two-wheeler market is a vital part of the nation’s transportation system, which offers affordable mobility solutions across diverse regions. In 2025, the market is projected to reach approximately USD 123.81 billion, with expectations of continued growth driven by both traditional bikes and the rising popularity of electric scooters. Understanding the Goods and Services Tax (GST) is crucial for both buyers and sellers in this sector. This article aims to provide a clear understanding of GST on bikes and how it impacts the pricing and affordability of two-wheelers in India.

What is GST?

The Goods and Services Tax (GST) is a comprehensive indirect tax introduced in India on July 1, 2017, replacing multiple central and state taxes to create a unified taxation system. It is a destination-based tax, which means it is levied where the goods or services are consumed, rather than where they are produced.

Before GST, the Indian taxation system was fragmented, with various taxes like Central Excise Duty, Service Tax, Value Added Tax (VAT), and others levied separately by the central and state governments. This led to a cascading effect of taxes, where tax was levied on tax, which increases the overall cost to the consumer.

Applicability of GST on Bikes

In India, the Goods and Services Tax (GST) applies to both new and used two-wheelers, which encompasses electric and non-electric models. The GST rate depends on the engine capacity and type of the vehicle.

GST on New Two-Wheelers

• Electric two-wheelers are taxed at a concessional rate of 5%, which encourages the adoption of eco-friendly transportation.
• Non-electric two-wheelers with engine capacity up to 350cc attract a GST of 28%.
• Non-electric two-wheelers with engine capacity above 350cc are subject to 28% GST plus a 3% compensation Cess, which totals to 31%.

GST rate and HSN code for bikes

The following details include the GST rates and HSN codes for bikes:

GST on Used Two-Wheelers

As per the latest notification, the sale of all old and used vehicles, which includes electric vehicles, by registered sellers is subject to 18% GST. In this case, GST is applied only on the margin value that is the difference between the selling price and the purchase price of the vehicle. Sales between unregistered individuals remain exempt from GST.

E-Way Bill Requirements

An e-way bill must be generated for the transportation of goods, which includes two-wheelers, when the value exceeds Rs. 50,000. This requirement applies to both registered and unregistered individuals.

Place of Supply

The place of supply for two-wheelers is determined based on the destination of the goods. This is crucial for determining whether Central GST (CGST) and State GST (SGST) or Integrated GST (IGST) applies to the transaction.

Tax Invoice

Registered sellers are required to issue a tax invoice for the sale of two-wheelers, which details the applicable GST rates and amounts.

Understanding these GST provisions is essential for both buyers and sellers to ensure compliance and accurate pricing in two-wheeler transactions.

GST Number Addition to Bike Purchase

When you are purchasing a bike for business use in India, adding your GST number into the transaction is optional for tax compliance and other potential benefits.

Why Add Your GST Number?

Including your GST identification number (GSTIN) on the purchase invoice allows you to claim input tax credit (ITC) for the GST paid, provided the vehicle is used exclusively for business activities. This means you can offset the GST paid on the bike against your GST liability, which effectively reduces your overall tax burden.

Steps to Add Your GST Number

Here are the steps to add a GST number:

• Provide GSTIN at Purchase: When buying the bike, furnish your GSTIN to the dealer to ensure it is included on the invoice.
• Verify Invoice Details: Ensure the invoice contains accurate details, which include your business name, address, and GSTIN, along with the dealer’s information.
• Insurance Policy Update: Contact your insurer to add your GSTIN to the bike’s insurance policy. This ensures the paid on premium is correctly attributed to your business.
• Maintain Proper Documentation: Keep all purchase and insurance documents with GST details for your records and future reference.

Benefits of Including GSTIN while Business Purchasing

Including your GSTIN when purchasing a bike for business purposes in India offers several benefits, typically in terms of tax benefits, financial management, and compliance. Let us discuss the benefits of including your GSTIN:

• Tax credit eligibility

By providing your GSTIN at the time of purchase, you can claim input tax credit (ITC) on the GST paid, only when the vehicle is used for business purposes. Claiming ITC can reduce your overall tax liability, which can improve your business’s cash flow.

• Enhanced compliance

Including your GSTIN ensures that your purchase has been recorded accurately in your GST returns, which facilitates smoother reconciliation and reduces the risk of discrepancies during audits. Proper documentation, which includes GST-compliant invoices, is mandatory for claiming ITC and maintaining compliance with GST regulations.

• Improved financial management

Accurate GST records provide better financial planning and auditing processes. By maintaining detailed records of GST paid purchases, businesses can manage their finances more effectively, forecast tax liabilities, and make informed decisions regarding investments and expenditures.

• Streamlined operations

Providing your GSTIN at the time of purchase simplifies the process of claiming ITC and ensures that all the transactions are documented properly. This streamlining reduces administrative burdens and allows businesses to focus more on their core operations.

Input Tax Credit (ITC) Availability on Bikes

Under India’s GST framework, businesses can claim ITC on taxes paid for goods and services used in their operations. Section 17(5)(a) of the Central Goods and Services Tax (CGST) Act, 2017, restricts ITC on motor vehicles designed to carry passengers, particularly those with a seating capacity of 13 or more individuals. This provision aims to prevent the misuse of ITC on vehicles primarily intended for personal or non-business use.

When ITC Is Allowed for Bikes (Passenger Transport):

Despite the general restriction, ITC can be claimed on two-wheelers in specific scenarios:

• Further Supply of Vehicles: If a business purchases two-wheelers with the intent to sell them, such as dealerships or resellers, they are eligible to claim ITC on these vehicles. (i.e., if you’re in the business of selling used or new bikes).
• Transportation of Passengers: Businesses that use two-wheelers to provide passenger transportation services, such as bike taxis or ride-sharing platforms, can claim ITC. (i.e., commercial use like rentals or bike taxis such as Rapido).
• Driver Training Service: Institutions that acquire two-wheelers to offer driving lessons are permitted to claim ITC, as the vehicles are integral to their training services. (e.g., driving schools).

Additional Considerations

• Demo Vehicles: Authorized dealers that use two-wheelers as demonstration vehicles for potential customers may be eligible for ITC, provided these vehicles are used exclusively for sales promotion and are not capitalized as fixed assets.
• Transportation of Goods: While the primary restriction applies to passenger vehicles, businesses using two-wheelers for goods transportation might be eligible for ITC, subject to specific conditions and interpretations.

Input Tax Credit (ITC) for Dealers

Under GST, businesses can reduce their tax by claiming credit for GST paid on purchases against their sales tax. For bike dealers, understanding the nuances of ITC is crucial to optimize tax benefits and maintain competitive pricing.

Eligibility of ITC for Bike Dealers

The GST law restricts ITC claims on motor vehicles with a seating capacity of up to 13 persons. There are specific exceptions where bike dealers can avail of ITC:

• Further Supply of Vehicles: Dealers purchasing two-wheelers for resale purposes are eligible to claim ITC. This is because the vehicles are considered inventory for further supply, which aligns with business operations.
• Passenger Transportation Services: If a dealer uses two-wheelers to provide passenger transportation services, such as bike taxis, they can claim ITC on these vehicles.
• Driver Training Services: Dealers operating driving schools and using two-wheelers for training purposes are permitted to claim ITC, as the vehicles are integral to their service offerings.

It's essential for dealers to ensure that the two-wheelers are registered in the company's name and used exclusively for business purposes to qualify for ITC.

Impact on Pricing and Profit Margins

Claiming ITC effectively reduces the net tax burden on dealers, which allows them to price their products more competitively. If a dealer pays Rs. 10,000 as GST on a bike purchase and is eligible for ITC, this amount can be offset against their GST liability on sales, which effectively reduces the cost base.

ITC can be claimed on related expenses such as maintenance, repairs, and insurance, provided these services are used for business purposes. This further enhances profitability and allows for better cash flow management.

Compliance and Documentation

To avail the ITC, bike dealers need to adhere to specific compliance requirements:

• Valid Tax Invoices: Maintain proper tax invoices for all purchases.
• GST Returns: File accurate and timely GST returns, reflecting the ITC claims.
• Usage Records: Keep detailed records demonstrating that the two-wheelers are used exclusively for business purposes.

Non-compliance or inadequate documentation can lead to denial of ITC claims and potential penalties.

GST Impact on Two-Wheeler Prices

The implementation of the GST in India has significantly influenced the pricing dynamics of two-wheelers, which affects both conventional and electric models. Here is how GST has impacted the two-wheeler market:

Before Vs After GST: Price Comparison

Before GST, the tax on two-wheelers comprised various levies like excise duty, VAT, and CST, which amounted to approximately 30%. With the coming of GST, a standardized tax rate of 28% was introduced for two-wheelers with engine capacities up to 350cc, which leads to a slight reduction in prices.

Premium bikes with engine capacities exceeding 350cc attracted an additional 3% cess, culminating in a total tax rate of 31%. This increment resulted in higher prices for models such as the Royal Enfield Classic 500 and Harley-Davidson Street 750.

Impact on Budget VS Premium Bikes

The GST regime has had a mixed impact on different segments of the two-wheeler market:

• Budget Bikes (≤350cc): The marginal reduction in tax rates made entry-level bikes more affordable, potentially boosting sales in this segment.
• Premium Bikes (>350cc): The increased tax burden led to higher prices, which may have dampened demand among cost-sensitive consumers.

Influence on the Electric Two-Wheelers

To promote sustainable transportation, the government reduced the GST rate on electric two-wheelers from 12% to a mere 5%. This substantial tax cut has made electric bikes more accessible to the general public, encouraging a shift towards eco-friendly commuting options.

Manufacturers have responded positively to this initiative, such as Ather Energy reduced the price of its Ather 450X model by approximately Rs. 14,000, passing on the benefits of GST directly to consumers.

Recent Updates and Policy Changes

India's GST framework has undergone significant changes to promote sustainable transportation, particularly electric vehicles (EVs). These policy shifts aim to make EVs more affordable and encourage their adoption across the country. Let us discuss the recent updates and policy changes:

Reduced GST on Electric Two-Wheelers

To encourage the purchase of electric two-wheelers, the government has reduced the GST rate from 12% to 5%. This tax cut lowers the upfront cost for consumers, which makes electric bikes a more attractive alternative to traditional petrol-powered vehicles. The reduced GST rate also benefits manufacturers by potentially increasing demand for electric two-wheelers.

GST on bikes and two-wheelers in India significantly affects their overall prices. Electric vehicles enjoy a lower GST rate compared to regular two-wheelers. Buyers need to understand how GST impacts the final price and ensure proper documentation. Being informed about GST rates and eligibility for tax credits can lead to better decision-making and financial benefits when purchasing a two-wheeler. In this article, you have learned about the GST on bikes and two-wheelers in India. To get assistance and support in filing a GST for your bike business, contact Online Legal India.