You must have heard about GST. It is perhaps one of the most significant economic tax reform in recent times. With the GST (Goods and Services Tax) bill, the Government is looking to create a uniform tax structure across the country. The automobile manufacturers across the country are divided over the affects of GST on car and bike prices. The fact is, that there is still a fair bit of uncertainty regarding the affect of GST on automobile prices. This is because the implementation of GST could affect each segment differently. Most of the buyers are currently facing a similar dilemma i.e “Should I buy car after the GST?” In this post, let’s take a look at how car and motorcycle prices might be affected with the implementation of GST. Many of you might also be having the question – “How will GST Affect Car Price?”. We will answer all these questions in this post here.
How will GST Affect Car Price?
What is the Current Tax Structure?
As of now, multiple taxes are imposed on a product at both the Central and State level. An excise duty is imposed at the factory level which is based on a classification specified by the Government. The Sub 4 meter cars come under the lowest duty of 12%.
For calculating Ex-Factory Price
- Excise Duty – 12% to 27%
|Excise Duty||12%||Small Cars less than 4 Meter in length|
|24%||Cars with Length more than 4 Meter but Engine capacity less than 1.5 Litre|
|27%||Cars with Engine capacity more than 1.5 Litre|
- Infrastructure Tax – 1% to 4%
For calculating Ex-showroom Price
- VAT Duty – 12.5% to 14.5%
- Octroi / Entry Tax – 4% to 6% (Applicable in Certain States)
For calculating On Road Price
- Road Tax – 3% to 24%
The above taxes means that the on road prices of cars across various states vary to a high extent depending on the state level tax structure. So, will the GST mean that the price of a particular car will be uniform across the country? The answer is both Yes and No. We shall explain how in the next section.
Will Cars Cost Less After GST?
Since GST implies a more unified tax structure, car manufacturers will be able to keep a uniform price of a car across the country. This means that ex-showroom prices of vehicles across India will be the same. That said, GST does not include taxes such as road tax, which varies across different states. This means the on-road price of a car will not be the same across the country. The passenger cars will fall under the 28% GST slab. There will be an additional 1% or 3%. This means there will be a negligible change in the prices of small and mid size vehicles. Talking about luxury cars, they will also fall under the 28% tax slab, however, an additional 15% cess will be imposed on them to make sure that the Government does not incur major losses in revenue. Even with the additional cess, premium luxury cars will attract less tax, which means they are likely to get cheaper.
|SMALL CARS PETROL||28% + 1% cess|
|SMALL CARS DIESEL||28% + 3% cess|
|LUXURY CARS||28% + 15% cess|
The Finance Minister has made it clear that the maximum tax levied will be 40%. Which means there should be a reduction in the prices of luxury cars. However, the Government is yet to define clearly what are “luxury cars”. Additionally the FM has neither defined nor quantified this cess. Reports suggest that most cars will not see any major dip in prices. One would have to wait for the official announcement to get a clearer picture and only then we will have a more clear answer to the question – “How will GST affect car price?”
So Should I Buy a Car After GST?
As mentioned earlier, the implementation of GST will affect each segment differently. The major deciding factor here would be how each segment is defined. Now since sub 4 meter vehicles already enjoy excise benefits, the affect of GST on the prices of these models would be much lesser compared to the affect on the prices of mid-segment cars such as the Honda City and the Maruti Ciaz. However, the general view is that there should be some reduction in the prices of automobiles. So, it definitely makes a lot of sense to put your car purchase on hold until there is more clarity on the GST structure. Right now, this is what the proposed tax structure could look like
|GST||28% + 1% or 3% cess||GST on Passenger Cars|
|28% + 15% cess||Luxury Cars. Definition of Luxury Cars not available|
Road tax – 3% to 24% (Different for every state)
Stay tuned to India Autoz (indiaautoz.in) for more updates on GST and its effect on car and bike prices in India. Do let us know your queries and views via the comments section below.