GST is perhaps the most important economic tax reform in recent times. With the Goods and Services Tax bill, the Government aims to create a uniform tax structure across the country. Automobile manufacturers are divided over the implications of GST on car and bike prices. The implementation of GST will affect each segment differently.
Most buyers are currently facing a similar dilemma – “Should I buy car after GST?” Many of you might also be wondering – “How will GST Affect Car Price?”. Let’s take a look at how car prices might be affected following the implementation of GST. We will try to answer all these questions in this post here.
GST IMPACT – GST Effect on Car Prices
|Under 4-metres||Under 1.2-litre Petrol||31.5%||29%||2.5%|
|Under 4-metres||Under 1.5-litre Diesel||33.25%||31%||2.25%|
|Under 4-metres||Above 1.2-litre Petrol or 1.5-litre Diesel||44.7%||43%||1.7%|
|Above 4-metres||Above 1.2-litre Petrol or 1.5-litre Diesel||51.6%||43%||8.6%|
|Electric Vehicles (EVs)||20.5%||12%||7.5%|
Will Cars Cost Less After GST?
Since GST proposes a more unified tax structure, car makers will be able to charge a uniform price across the country. Which means ex-showroom prices of vehicles across India will be the same. However, GST does not subsume taxes such as road tax, which varies across states. This means on-road price across the country will not be the same. Small cars will fall under the 28% GST slab. There will be an additional 1% cess on Petrol and 3% cess on Diesel cars. While prices of almost every car will drop to at least some extent, hybrid cars will get costlier. The price difference between diesel and petrol variants will also increase. Mid-size cars (length greater than 4 m, engine smaller than 1500cc) such as Maruti Ciaz will cost more or less the same, with only a very small price cut expected for these cars.
However, while luxury cars will also fall under the 28% tax slab, an additional 15% cess will be imposed on them to ensure the Government does not incur major losses in revenue. Despite the additional cess, premium luxury cars will attract less tax, which means they will get cheaper.
The Finance Minister has stated that the maximum tax levied will be 40%. In a bid to push electric vehicles, the Government has ensured they fall under the lowest tax bracket of 12%. However, rather surprisingly, hybrid vehicles have been kept in the highest bracket (28% + 15%). This is a big setback for manufacturers in India who have been planning big investments towards the introduction of energy-efficient hybrid vehicles. Also, under the old tax structure, various states levied additional taxes on vehicles (eg. Octroi in Maharashtra). With the introduction of GST, these taxes will not be applicable, which means the overall percentage change in prices of cars will vary from state to state.