Looking for expert help with Income tax and GST for two-wheeler showroom dealers India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Motorcycles, scooters and mopeds up to 350 cc are 18% Goods and Services Tax (GST); above 350 cc they're 40%, with no compensation cess, from 22 September 2025 (Notification 9/2025-Central Tax (Rate)).
- Electric two-wheelers are 5%. Spare parts, tyres, batteries, engine oil and helmets are 18%.
- Don't take Rs 2 lakh or more in cash for one bike, even split across days. The penalty equals the cash received (Sections 269ST and 271DA).
- Most showrooms are above the Rs 3 crore limit for Section 44AD, so you'll need books. A tax audit applies above Rs 1 crore, or Rs 10 crore if cash stays within 5%.
- The 0.1% TCS on sale of goods ended on 1 April 2025. The 1% TCS on a vehicle priced above Rs 10 lakh continues.
What is the GST rate on two-wheelers in India? Motorcycles, scooters and mopeds with engine capacity up to 350 cc attract 18% GST (Schedule II, S. No. 546) and those above 350 cc attract 40% (Schedule III, S. No. 8) under Notification 9/2025-Central Tax (Rate), in force from 22 September 2025. Compensation cess no longer applies. Electric two-wheelers are 5%, and parts and accessories are 18%.
GST 2.0 changed the bill for every bike on your floor. Commuter bikes and scooters dropped from 28% plus cess to 18%, while bikes above 350 cc moved to a flat 40%. A showroom also handles more than vehicles: spares, accessories, service jobs, finance and insurance tie-ups. And it takes a lot of money from walk-in customers, some of it in cash. This guide covers the GST rates you'll bill, the cash and TCS rules that catch dealers out, and how your income tax works for AY 2026-27.
What GST rate applies to each thing you sell?
Comparison
GST Rates for a Two-Wheeler Showroom (from 22 September 2025)
| Item | HSN | GST rate |
|---|---|---|
| Motorcycles, scooters and mopeds up to 350 cc | 8711 | 18% |
| Motorcycles above 350 cc | 8711 | 40% |
| Electric scooters and bikes (run solely on electricity) | 87 | 5% |
| Chargers for electric vehicles | 8504 | 5% |
| Parts and accessories of two-wheelers | 8714 | 18% |
| Tyres for two-wheelers | 4011 | 18% |
| Inner tubes | 4013 | 18% |
| Batteries (electric accumulators) | 8507 | 18% |
| Engine oil and lubricants | 2710 | 18% |
| Helmets and other headgear | 6506 | 18% |
Source: Notification 9/2025-Central Tax (Rate): Schedule I S. No. 438, 441; Schedule II S. No. 29, 137, 139, 212, 480, 546, 547; Schedule III S. No. 8
Within your state you split the rate into CGST and SGST: 9% + 9% for an 18% bike, 20% + 20% for a 40% bike and 2.5% + 2.5% for an electric scooter. A sale to a buyer in another state is IGST at the full rate.
The 350 cc line matters. The official FAQs on the 56th GST Council meeting confirm the 40% rate applies only to bikes exceeding 350 cc, so a 350 cc model stays at 18%. Take the engine capacity from the manufacturer's invoice and specifications, and set it once per model in your billing software.
The electric vehicle entry covers vehicles run solely on electrical energy. A hybrid doesn't qualify for 5%. It's taxed by its engine capacity like any other motorcycle.
Compensation cess is gone for two-wheelers. Bikes above 350 cc used to carry 28% GST plus cess. The Council ended the cess levy on these goods and merged it into the 40% rate, so your invoice shows GST only.
What does the GST look like on a real sale?
A 125 cc scooter. You buy it from the manufacturer for Rs 80,000 plus Rs 14,400 GST at 18%. You sell it for Rs 86,000 plus Rs 15,480 GST, so the customer pays Rs 1,01,480 ex-showroom. You pay Rs 1,080 in cash after setting off the Rs 14,400 input tax credit (ITC).
A 400 cc motorcycle. Your selling price is Rs 2,50,000. GST at 40% is Rs 1,00,000 (Rs 50,000 CGST and Rs 50,000 SGST), so the ex-showroom price is Rs 3,50,000.
Road tax and registration fees paid to the Regional Transport Office (RTO) in the customer's name are a different matter. If you pay them as the customer's agent, show them separately on the bill and recover the exact amount, they can be kept out of your taxable value under the pure agent rule (Rule 33, CGST Rules). Any handling or logistics charge you keep for yourself is part of the vehicle's price and is taxed at the vehicle's rate. Bill servicing parts on their own lines at 18%, separate from labour.
If your aggregate turnover is above Rs 5 crore, invoices to registered businesses (fleet buyers, sub-dealers) need an e-invoice with an Invoice Reference Number (Notification 10/2023-Central Tax). Sales to individual customers don't.
Why can't you take more than Rs 2 lakh in cash for a bike?
Section 269ST of the Income-tax Act 1961 bars anyone from receiving Rs 2 lakh or more in cash:
- from one person in a single day
- for a single transaction
- for transactions relating to one event or occasion
The penalty under Section 271DA is a sum equal to the amount received. It isn't a percentage. You avoid it only if you can show good and sufficient reasons.
Here's how it catches showrooms. A customer buying a Rs 3,50,000 bike pays Rs 1,50,000 in cash on Monday and Rs 1,00,000 in cash on Tuesday, with the rest financed. Neither day crosses Rs 2 lakh, but both payments are for the same bike. That's Rs 2,50,000 in cash for a single transaction, and the penalty can be Rs 2,50,000. Take anything above Rs 1,99,999 per bike by UPI, card, bank transfer or account payee cheque. Our cash transaction limits guide covers the related rules.
The Income-tax Act 2025 replaces the 1961 Act from 1 April 2026 with new section numbers. Confirm the current references with your CA for FY 2026-27 sales.
Do you collect TCS on vehicle sales?
Two TCS rules matter to a dealer, and one of them has ended.
- TCS on sale of goods has stopped. Under Section 206C(1H), a seller used to collect 0.1% on receipts from a buyer above Rs 50 lakh a year. That often caught sales to sub-dealers. The Finance Act 2025 switched it off from 1 April 2025.
- TCS on a motor vehicle above Rs 10 lakh continues. Section 206C(1F) requires a seller to collect 1% of the sale price when one motor vehicle is sold for more than Rs 10 lakh. The limit is per vehicle, not your yearly total. Most commuter bikes never get near it, but a premium superbike can. Check with your CA whether you fall within the section's definition of "seller".
Our TCS guide explains how to deposit TCS and file the quarterly return.
Step-by-Step Guide
Before You Hand Over the Keys
Check the engine capacity
Up to 350 cc is 18%, above 350 cc is 40%, and electric-only is 5%. Take it from the manufacturer's specification.
Split the bill
Vehicle, accessories and parts on their own lines. Show RTO fees paid as the customer's agent separately.
Count the cash
Total cash for this bike must stay below Rs 2 lakh across all days and all instalments (Section 269ST).
Price above Rs 10 lakh?
Collect 1% TCS under Section 206C(1F) if you're a seller under the section.
Business buyer?
Take their GSTIN. Above Rs 5 crore aggregate turnover, generate an e-invoice.
Source: Notification 9/2025-Central Tax (Rate); Rule 33, CGST Rules; Notification 10/2023-Central Tax; Sections 269ST and 206C(1F), Income-tax Act 1961
Do you need GST registration, and does composition make sense?
If you only sell goods, registration is required once aggregate turnover crosses Rs 40 lakh in most states. Telangana and several other states kept the Rs 20 lakh limit (Notification 10/2019-Central Tax). Selling to a buyer in another state needs registration from the first rupee (Section 24(i), CGST Act). Our GST registration service can handle it.
The composition scheme caps turnover at Rs 1.5 crore. At Rs 1 lakh a bike, that's about 150 vehicles a year, so most authorised showrooms are well past it. A small sub-dealer might fit, but composition dealers can't charge GST on the bill, can't claim ITC and can't sell to other states (Section 10(2)(c), CGST Act). See our composition scheme guide before you opt in.
How is a showroom's income taxed for AY 2026-27?
Section 44AD lets a resident individual, HUF or partnership firm (not an LLP) declare a deemed profit up to Rs 2 crore of turnover, or Rs 3 crore where cash receipts are within 5% of total receipts. Sell 300 bikes at Rs 1 lakh and you're at Rs 3 crore before spares and service. So most showrooms keep full books of account and pay tax on actual profit.
Whether you also need a tax audit depends on your cash mix (Section 44AB(a)):
- turnover above Rs 1 crore: audit required
- turnover up to Rs 10 crore, with cash receipts within 5% of total receipts and cash payments within 5% of total payments: no audit
Showrooms paid mostly through finance companies, UPI and cards often meet the 5% test. See our tax audit section 44AB thresholds guide for the full calculation.
Example (proprietor, new regime): A showroom has turnover of Rs 6 crore. Cash receipts are Rs 24 lakh (4% of receipts) and cash payments are 2% of payments, so the Rs 10 crore limit applies and no tax audit is needed. Net profit from the books is Rs 18,00,000, with no other income.
- Tax: 5% of Rs 4,00,000 (Rs 20,000) plus 10% of Rs 4,00,000 (Rs 40,000) plus 15% of Rs 4,00,000 (Rs 60,000) plus 20% of Rs 2,00,000 (Rs 40,000). Total Rs 1,60,000.
- No Section 87A rebate, because income is above Rs 12 lakh. Add 4% cess of Rs 6,400.
- Tax payable: Rs 1,66,400.
If the same showroom had taken Rs 48 lakh in cash (8% of receipts), the Rs 10 crore limit wouldn't apply, and a Rs 6 crore turnover would need a tax audit. See our tax audit thresholds guide.
Commission from finance companies and insurers on loans and policies you arrange is business income. They'll usually deduct TDS on it. Match those credits with your Form 26AS and Annual Information Statement (AIS) before filing. A proprietor filing on books uses ITR-3, a partnership firm ITR-5 and a company ITR-6.
Common mistakes two-wheeler dealers make
- Billing a 350 cc bike at 40%. The 40% rate applies only above 350 cc.
- Splitting cash across days for one bike. Section 269ST counts the whole transaction, not each day's receipt.
- Still collecting 0.1% TCS from sub-dealers. Section 206C(1H) stopped applying from 1 April 2025.
- Mixing RTO fees into taxable value, or keeping a margin on them. Pass them through at actual cost and show them separately, or they become part of your taxable sale.
- Treating hybrids as electric. The 5% entry is only for vehicles run solely on electricity.
How Tax Garden helps two-wheeler dealers
We map every model, part and accessory to its HSN and rate, file GSTR-1 and GSTR-3B with your vehicle and spares sales reported correctly, and check your e-invoicing and TCS position. See our GST return filing service. We keep your books and prepare your ITR, with the audit if your cash mix needs one; see our accounting and bookkeeping service, ITR filing service and pricing. If you also run a spares counter, our auto parts and tyre shop guide covers it in more detail.
