GST on Cars in India
India's bustling automobile industry, a major contributor to the nation's economy, has undergone a significant shift with the implementation of the Goods and Services Tax (GST). This comprehensive tax reform has streamlined the way cars are taxed, impacting both consumers and industry players. Let's embark on a journey to demystify GST on cars in India.
GST Rates and Factors Affecting Them
Unlike the pre-GST era, where a web of taxes like excise duty, VAT, and octroi burdened car purchases, GST offers a more simplified structure. However, the tax you pay on your dream car depends on several key factors:
- Car Classification: This can be small, medium, luxury, or SUV.
- Fuel Type: Petrol, diesel, or electric.
- Engine Capacity: This plays a crucial role in determining the tax bracket.
GST Rate Structure for Cars
Understanding the different GST rates applicable to various car categories is essential:
- Small Cars (Engine Capacity Below 1200cc): These cars attract a GST rate of 18%. (Examples: Maruti Suzuki Swift, Hyundai Grand i10)
- Mid-Size Cars (Engine Capacity Between 1200cc and 1500cc): These cars will attract a GST @18% as per the new gst rates. (Examples: Maruti Baleno, Tata Nexon)
- Luxury Cars (Engine Capacity Above 1500cc): Luxury cars fall under the 40% GST bracket. (Examples: Land Rover, Lamborghini Aventador)
- SUVs (Engine Capacity Above 1500cc): Similar to luxury cars, SUVs with larger engines attract 40% GST. (Examples: Mahindra TUV, Jeep Compass)
- Electric Vehicles (EVs): Electric vehicles receive a significant benefit with a lower GST rate of 5%. (Examples: Mahindra e20, Mahindra eVerito)
Additional Cess on Cars
As per the updated GST slabs the cess tax has been eliminated bringing a big relief for the car buyers.
Impact of GST on the Automobile Industry
he GST Council has introduced a new simplified tax structure for the automobile industry, which has a mixed impact on different vehicle segments. The new framework aims to streamline the tax system by replacing the previous multiple tax slabs (28% GST plus various cesses) with a more defined two-tier system, plus a special category for luxury goods.
Consumers
The impact on consumers is highly dependent on the vehicle type they are purchasing.
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Small and Mass-Market Vehicles: Buyers of small cars, hatchbacks, compact SUVs, and two-wheelers with engine capacities up to 350cc will benefit from a significant reduction in prices. This is because the total tax burden on these vehicles has been reduced from a combination of 28% GST and an additional cess (which could be 1% or 3%) to a flat 18% GST. This is expected to make entry-level vehicles more affordable and boost sales, especially in the festive season.
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Larger and Luxury Vehicles: For buyers of larger cars, SUVs, and high-end motorcycles (above 350cc), the new tax structure is a mixed bag. The previous total tax, which included 28% GST plus a high compensation cess (ranging from 17% to 22%), has been replaced with a flat 40% GST. While the headline GST rate is higher, the abolition of the cess means the overall tax incidence has been reduced for many of these vehicles, leading to a modest price drop.
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Electric Vehicles (EVs): The GST rate for electric cars remains unchanged at a concessional 5%, a policy designed to continue promoting the adoption of cleaner mobility solutions.
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Auto Parts and Commercial Vehicles: GST on all auto parts has been uniformly set at 18%, down from 28% for some parts, which is expected to lower the cost of vehicle maintenance and repairs. Similarly, the GST on commercial vehicles, such as trucks and buses, has been reduced from 28% to 18%, which is expected to lower logistics costs and benefit the transport sector.
Manufacturers
The simplified tax structure is a welcome move for manufacturers.
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Streamlined Operations: The new system simplifies tax calculation and compliance, as it removes the complexities of varying cess rates for different vehicle specifications. The uniform 18% GST on auto parts is also expected to resolve long-standing classification disputes, making the supply chain more efficient.
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Input Tax Credit (ITC): Manufacturers can still avail themselves of the input tax credit on purchases, which improves cost efficiencies. The new structure, with a flat 40% GST for larger vehicles and no cess, will also simplify the utilization of ITC.
Dealers and Importers
Dealers and importers continue to benefit from the GST regime.
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Improved Cash Flow: The ability to claim input tax credit on purchases remains a key benefit, which helps in improving their cash flow and working capital. The simplification of the tax structure will make this process more straightforward.
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Inventory Management: With the new rates, especially the reduced tax on mass-market vehicles, dealers anticipate a surge in consumer demand, which will help in managing inventory more effectively.
Cars GST Calculation
The final price you pay for a car considers the applicable GST rate based on the car's category, fuel type, and engine capacity.
GST on Used Cars
For used cars and motorcycles, GST is applied only on the dealer’s margin (the difference between buying and selling price). If the margin is negative, there’s no GST liability. Purchases from unregistered sellers remain GST-exempt. With the option for a used car loan this makes the cars even more affordable.
Conclusion
The new GST regime brings relief for small car buyers and everyday motorcycle commuters, while premium car and motorcycle buyers face higher costs due to the steep 40% slab. Understanding these updated rates is crucial for making informed vehicle purchase decisions in India.