Under the new rule, only the president, the prime minister, cabinet ministers, senior judges and some other officials will be entitled to red beacons.
Emergency vehicles, ambulances and police cars could use flashing blue lights, the court ruled.
Critics say VIPs often use red beacons as a status symbol and these lead to traffic chaos for commuters.
In a judgement delivered on Tuesday, the court also banned pressure horns, multiple sound emitting horns and musical horns in vehicles.
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