How GST has Affected Car Prices in India?

With the impending implementation of the much-awaited Goods and Services Tax (GST) regime, the entire community of prospective car-owners had been speculating on making the purchase ahead of time or not. News of possible benefits and price cuts post GST had fuelled the uncertainty in the market. The general impression was that prices for most car models were set to decrease from 1 July 2017, after the GST system came into effect. This had made several car-buyers postpone their purchase till the new tax structure was effective.

Now that the Goods and Services Tax system is live, car companies have declared price cuts (as anticipated) on certain models of vehicles. Some models have turned out to be more expensive, as well.

Listed below are the prominent changes in price of vehicles post GST:

• Cars of length below 4 metres with petrol engines under 1.2 litres - price drop of around 2.5%
• Cars of length below 4 metres with diesel engines under 1.5 litres - price drop of around 2.25%
• Cars of length below 4 metres with petrol engines above 1.2 litres and diesel engines above 1.5 litres - price drop of around 1.7%
• Cars of length above 4 metres with petrol engines above 1.2 litres and diesel engines above 1.5 litres - price drop of around 8.6%
• SUVs - price drop of around 12%
• Hybrids - price hike of around 12.7%
• Electric vehicles - price drop of around 8.5%

What is GST?

GST is undeniably one of the most significant reforms made to the tax structure of the country in recent times. 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 governments and the centre. GST is governed by a GST Council with the Finance Minister of India as its Chairman. The launch of GST was during a midnight session of both houses of parliament on 30 June 2016.

GST impact on Car Finance

GST has impacted each section of the automobile market differently.

1. Sub 4-metre vehicles with petrol engines less than 1.2 litre

This segment of cars is one of the most popular in the country. Some models in this segment include the top-selling:

• Alto, Dzire, and Baleno from Maruti Suzuki
• Hyundai i20 and Hyundai Grand i10
• Volkswagen Polo
• Ford EcoSport with ecoboost engine
• Toyota Etios Liva
• Tiago and Tigor from Tata Motors

It is understood that this segment of vehicles will be positively impacted by the new GST rates. The previous tax rate on sub 4-metre hatchbacks, SUVs, and sedans was 31.5%. This was inclusive of the excise duties, cesses, and value added tax (VAT). The new tax rate on these models is 29%, including the 28% GST slab and an additional 1% cess that is applicable to cars in this segment.

Effectively, cars in this category will see a drop in price by 2.5% after 1 July 2017. It should be noted that this rate is applicable before insurance and registration charges. This is the least tax slab for SUVs and cars that have an internal combustion engine.

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2. Sub 4-metre vehicles with diesel engines less than 1.5 litre

The sub 4-metre diesel car category with engine capacity less than 1.5 litres is another highly popular segment in the country. Some of the models in this segment include:

• Vitara Brezza and Dzire diesel from Maruti Suzuki
• Hyundai i20 diesel
• KUV 100 and TUV 300 from Mahindra
• Tata Tigor diesel
• Ford EcoSport diesel
• Hyundai Xcent diesel

As per the previous tax structure, the sedans, SUVs, and hatchbacks in this category were taxed at 33.25%. This included the excise duties, VAT, and cesses. After the new GST regime, these cars are charged a tax of 31% (that includes 28% GST and 3% cess). In a nutshell, cars in this category will be cheaper by 2.25%, excluding registration and insurance charges.

3. Sub 4-metre vehicles with diesel engines more than 1.5 litre, petrol engines more than 1.2 litre

A small section of cars in the Indian automobile market fall in this category. These include the likes of:

• Hyundai i20, 1.4 litre automatic
• Ford EcoSport petrol with 1.5 litre engine

The previous tax structure for hatchbacks, subcompact sedans, and subcompact SUVs in the category was 44.7%. This was inclusive of VAT, added cess, and excise duties. The post GST structure has altered that figure to 43%. This is inclusive of 28% GST and 15% cess. So, cars in this category will cost slightly lesser than before, i.e., by 1.7% excluding registration and insurance charges.

Since this is a small segment in the Indian market, the reduction in cost may not make a significant impact on an overall scale.

4. Cars larger than 4 metres, all petrol and diesel engines (not including SUVs)

Cars longer than 4 metres with petrol engines larger than 1.2 litres and diesel engine capacity more than 1.5 litres form a major chunk of vehicles that are sold in the country. Some of the cars in this category are:

• Maruti Suzuki Ciaz
• Mini 5-door
• Honda City
• Mercedes-Benz S-Class or E-Class

As per the older tax rates, these vehicles were levied 51.6% tax. This included excise duties, VAT, and added cess. The new tax rate for these vehicles is 43%. This includes 28% GST and an additional 15% cess.

This implies that cars in this segment will be cheaper by 8.6%, a significant value. This price drop is expected to make this category a lot more popular with the consumers. The Indian audience has been showing a trend of moving towards premium hatchbacks and bigger sedans before the GST implementation as well.

5. SUVs larger than 4 metres, all petrol and diesel engines

This segment includes all SUVs that are longer than 4 metres, such as:

• Audi Q7
• Mercedes-Benz GLC
• Ford Endeavour
• Toyota Fortuner
• Volkswagen Tiguan
• Mahindra XUV 500 and Scorpio
• Tata Hexa

This category of cars has been seeing increased popularity in the recent past, as people are moving towards the purchase of these models.

The earlier tax rate for this segment was 55%, including VAT, excise duties, and cess. As per the new tax structure, the total tax on these cars is 43%, including 28% GST and 15% additional cess. Effectively, cars of this category are now cheaper by 12%, the biggest drop in tax rate in the 4-wheeler (with internal combustion engine) segment.

6. Hybrids

Although hybrids are a small section of the Indian automobile industry, these vehicles are very popular around the world. In India, the most prominent hybrid cars sold are:

• Toyota Prius and Camry Hybrid
• Honda Accord Hybrid
• Volvo XC90 T8 plug-in hybrid
• Lexus RX450h SUV
• ES300h sedan

The earlier tax rate for this section was 30.3%, including various added cesses, VAT, and excise duties. As per the new GST structure, the tax rate for these vehicles has seen a significant increase, with the final value standing at 43%. This includes 28% GST and an additional 15% cess. This emphasizes the government’s move to dissuade manufacturers from introducing current and modern hybrid technology into the market.

7. Electric cars

The only dealer of mainstream electric cars in the country is Mahindra Electric. The models Mahindra e20 with 5 doors and Mahindra eVerito are the most popular fully electric vehicles in India.

The pre-GST tax structure for these vehicles was 20.5%. This includes VAT, excise duties, and added cess. The new tax rate for this segment is 12% GST, without any cess. This indicates a drop in tax by 8.5%.

The government is clearly trying to push the propagation of all-electric motoring in the country. This is also in alignment with the government’s strategy to make Indian roads have all-electric cars and SUVs by 2030. But the readiness of the country in adopting the new technology is something that is highly debated.

To summarise, the change in tax rates across segments is as shown in the table below:

Reduced price of cars after GST announcement

Post GST implementation, several car manufacturers have passed on the reduction in tax rates to customers. In fact, lucrative discounts were offered by Maruti, Hyundai, Honda, Ford, etc. before GST implementation, in an attempt to counter the low demand during those days. Following the announcement of the new tax structure, the actual change in car prices are as described below:

• Maruti car prices

Maruti Suzuki, India’s largest carmaker has offered GST rate benefits to its customers. The ex-showroom prices of its models have reduced by about 3%. However, the hybrid vehicles from the Maruti Suzuki range have seen a price hike. The current cost of Maruti cars are as shown in the table below:

• Hyundai car prices

Hyundai India, the second-largest carmaker in the country is providing discounts on various models in their range of vehicles. The cost of these vehicles before and after the GST regime are detailed below:

• Tata car prices

Tata Motors is offering cost rebates on various models, including their latest entrant into the Indian automobile scene, Tata Hexa. The price range for Tata cars before and after GST are as shown in the table below:

• Mahindra car prices

Mahindra is another popular brand in the Indian automobile domain. Most of the vehicles in their range are larger cars that have greatly benefitted from the implementation of GST. Following are the approximate drop in prices across the Mahindra car models:

Summary

It is understood that the ex-showroom prices of all cars in India except hybrid drivetrains are expected to decrease. The drop in prices will range between 2.25% and 12%.

Luxury cars and SUVs are benefitted the most, as these will witness a larger price drop than the rest of the vehicles. It should be noted that the price of insurance has also increased post Goods and Services Tax implementation. Motor insurance premiums have gone up from 15% to 18%. Since luxury cars attract higher insurance premiums, the variance in the on-road price of these vehicles may be minimal.