Looks like prospective car buyers are going to have to consider more factors than just make and model or gas mileage before investing in a car once the Goods and Services Tax is implemented this year. Experts are of the opinion that one of the major beneficiaries of the ‘one country, one tax’ rule will be the domestic automobile sector in India. Under this regime, once the unified tax will be levied, it will subsume multiple taxes levied by Central and State Governments like central excise, state value added tax, service tax, sales tax and other multiple cesses like Swachh Bharat and Krishi Kalyan cess; this will also include road and registration tax. GST will have a major impact on how we see car sales in India as of today. To understand GST for cars and its impact, let’s take a look at how the purchase of cars is currently taxed.

Excise duty on vehicles is divided into four slabs at the moment and the lowest tax rate among these slabs is applicable to the sale of cars. Experts have predicted that goods which attract a low rate of tax, for instance, small segment cars that have an excise duty of 8 per cent, are likely to see a price hike. So the small car may see a drop in sales. Manufacturers that derive major sales from the sale of small cars (Maruti Suzuki, Hyundai) are not very pleased with this and have recommended that there should be a differential rate for different segments of cars. However, biggers cars i.e Sports Utility Vehicles (SUVs) attract an excise duty of 27 to 30 per cent. These cars will witness a drop in prices resulting in increased sales – benefitting manufacturers like Mahindra and Mahindra.

Automobiles in India are taxed under the following parameters at the moment: Excise duty (ranging from 12% to 27%), infrastructure tax (1% to 4%) VAT (12.5% to 14.5%), octroi / entry tax (specific states) (4% to 6%) and road tax. The GST for cars will subsume Excise duty, infrastructure tax and VAT. Octroi is most likely to be abolished under GST as GST is a destination based tax that is levied at point of sale and not purchase.

Small car auto manufacturers hope that small cars can be grouped under the standard goods and services category (tax rate of 17-18 percent) – this will result in an overall decrease in rates (as much as 10 per cent for small cars and 2 to 5 per cent for SUVs and luxury sedans) and benefit both small and mid car segment manufacturers.

Meanwhile in GST news, Finance Minister Arun Jaitley, at the 13th GST council meet in New Delhi stated that the government will be keeping a headroom of about 3 per cent for imposing the cess on demerit goods (at a rate of 15 per cent.) The tax herewith, would be levied in such a manner that the final tax on demerit items will not be lower than the existing tax rate. This cess, among other sectors, will affect the luxury car segment.

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One response to “Buying a car? Find out how GST affects you”

  1. Pankaj hastwala says:

    Any new update /final version effecting car rates /landing price
    Road tax inclusion or under trasfer to other state stance of road tax?

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