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  • Impact of GST on Car Prices in India

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  • The Goods and Services Tax Bill was a vehicle for the government to create a uniform tax structure throughout the country. This indirect tax replaced several cascading taxes levied by the state and central governments.

    GST rate applicable on cars in India

    The GST rate applicable on a car is determined based on its classification and its fuel type.

    1. GST rate based on car category
    2. The table given below mentions the tax rates applicable to each car segment before and after the GST regime was implemented:

      Segment Engine capacity Tax rate pre-GST Tax rate post-GST Difference between pre-GST and post-GST tax rate
      Small cars Less than 1,200cc 28% 18% 10%
      Mid-size cars From 1,200cc to 1,500cc 39% 18% 21%
      Luxury cars Above 1,500cc 42% 28% 14%
      SUVs Above 1,500cc 45% 28% 17%
      Electric vehicles NA 20.5% 12% 7.5%
      • Small cars: Small cars such as Tata Tiago, Hyundai Grand i10, Maruti Suzuki Swift, and Volkswagen Polo attract tax equal to 18% in comparison to tax equal to 28% applied earlier.
      • Mid-size cars: The mid-size cars, like Maruti Baleno, Tata Nexon, Honda Amaze, and Nissan Kicks, see a drastic reduction of the tax rate from 39% to 18%.
      • Luxury cars: Luxury cars owners have to pay tax equal to 28% for cars such as Land Rover, Bugatti Chiron, Lamborghini, Aventador, Toyota Land Cruiser, and so on.
      • SUVs: The GST rate levied on SUVs such as Jeep Compass, Maruti Vitara Brezza, Renault Duster, Mahindra TUV, etc., is 28%, a 17% reduction from the total tax levied previously.
      • Electric vehicles: Individuals who bought electric vehicles had to bear tax equal to 20.5% earlier. After implementation of GST, the total tax levied has reduced to 12%.
    3. GST rate based on fuel type
    4. The table given below shows the change in tax rate before and after implementation of GST for each car segment based on the fuel type:

      Car type Engine type Fuel tank capacity Tax rate pre-GST Tax rate post-GST Difference between pre-GST and post-GST tax rate
      Sub 4-metre cars Petrol Less than 1.2l 31.5% 29% 2.5%
      Diesel More than 1.5l 33.25% 31% 2.25%
      Petrol, diesel Petrol: More than 1.2l; Diesel: Less than 1.5l 44.7% 43% 1.7%
      Larger than 4-metres SUVs Petrol, diesel Any capacity 55% 43% 12%
      Larger than 4-metres non-SUVs Petrol, diesel Petrol: More than 1.2l; Diesel: More than 1.5l 51.6% 43% 8.6%
      Electric cars Electric NA 20.5% 12% 8.5%
    • Sub 4-metre cars
      • Petrol engines less than 1.2l: This is the most popular car segment in India with cars such as Maruti Suzuki Dzire, Hyundai Grand i10, Toyota Etios Liva, Volkswagen Polo among others, that have been levied with a GST rate equal to 29%, a 2.5% reduction from the earlier tax regime.
      • Diesel engines more than 1.5l: Other cars commonly found on roads such as Hyundai i20, Ford Ecosport, Maruti Suzuki Vitara Brezza, Mahindra TUV 300, etc., that belong to this category of vehicles attract a GST equal to 31% in comparison to 33.25% in the earlier system.
      • Petrol engines more than 1.2l and diesel engines less than 1.5l: Subcompact sedans and subcompact SUVs with petrol engines larger than 1.2l and diesel engines smaller than 1.5l now attract taxes equal to 43%, a 1.7% reduction from the previous tax regime.
    • Larger than 4-metre SUVs: SUVs with petrol or diesel engines, irrespective of the displacement, such as Tata Hexa, Mercedes-Benz GLC, Mahindra Scorpio, Ford Endeavour, and so on, attract a tax equal to 43% compared to 55% from the previous regime.
    • Larger than 4-metre non-SUVs: Hatchbacks and sedans with petrol engines larger than 1.2l and diesel engines larger than 1.5l, like Honda City and Maruti Suzuki Ciaz, attract a tax equal to 43%, a reduction from 51.6% from the previous tax regime.
    • Electric cars: Individuals who buy electric cars, like Mahindra eVerito and Mahindra e20, were required to pay a tax equal to 20.5% earlier but are required to pay only 12% in the current GST tax system.

    Cess rate applicable on cars over and above GST rate

    Apart from GST, a cess will be applicable over and above the GST rate for automobiles. The cess rate for each car segment, alongside the respective GST rate, is given in the table below:

    Segment Engine capacity GST rate applicable Cess applicable
    Small cars Less than 1,200cc 18% 1%
    Mid-size cars From 1,200cc to 1,500cc 18% 3%
    Large cars Above 1,500cc 28% 15%

    Impact of GST on the vehicle industry

    The introduction of GST has been beneficial for the end consumer, dealer, as well as the manufacturer. The impact of GST on the automobile industry for each segment is as given below:

    • Consumer: As mentioned, the total tax rate levied on automobiles currently has reduced significantly as compared to the rates levied previously. This means that a customer has to pay a lower tax amount than he would have had to before the introduction of GST.
    • Dealers/importers: Importers and dealers in the automobile industry greatly benefit from the new tax regime as they can claim the tax paid. Earlier, VAT and excise duty could not be claimed.
    • Manufacturers: The introduction of GST that subsumes all previous taxes reduces the overall cost of manufacturing. Therefore, car makers also benefit from the new tax regime.

    Besides the vehicle, services and warranties offered by car makers are also taxed. These were not taxed earlier but are taxed under the GST regime. The new tax system focuses on the consumption state more than the origin state, which makes growth viable for the automobile industry.

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