GST’s Impact on Car Prices and Other Automobiles in India

Bio

Shreyansh Singh, an IIT Kanpur alumnus, has eight years of experience in the finance industry. He has spent 5 years at American Express developing mid to long-term strategies for multiple markets including US, Europe and India. Shreyansh currently leads Growth and Strategy initiatives at Pice.

10 Sep 24
10 mins

Shreyansh Singh

08 Mins
10-09-24

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Table of Contents

Pre-GST Tax Structure on Automobiles
GST Rates on Cars in India
GST on Cars by Category
GST on Cars by Fuel Type
Effects of GST on the Automobile Industry
Impact on Consumers
Impact on Manufacturers
Impact on Dealers and Importers
Calculating GST on Cars
GST Exemptions for Cars
Is Now a Good Time to Buy a Car?
The Bottom Line

GST replaced multiple indirect taxes, simplifying the tax structure for automobiles.
The GST regime reduced manufacturing and operating costs, benefiting vehicle manufacturers.
Consumers experienced a reduced tax burden, leading to lower vehicle prices.
The luxury car and SUV market saw a decline due to high additional cess rates.
Electric vehicles and ambulances enjoy lower GST rates to encourage environmental and healthcare benefits.

The Goods and Services Tax (GST) simplified the taxation system in more ways than one. Unlike the erstwhile regime that involved multiple indirect taxes at various stages, GST subsumed all those taxes under one centralised tax.

The automobile industry of India produces a huge number of vehicles yearly which brings along a tedious taxation burden on the companies. GST helped reduce the burden on automobile manufacturing companies by providing an alternative universal tax system.

In this blog, we will discuss the pre and post-GST tax structure on automobiles, the impact of GST on the automobile sector and many more.

Pre-GST Tax Structure on Automobiles

The following table shows the tax structure on automobiles in India before the GST regime:

Segment	Excise	Nccd + auto cess	VAT	Road tax	Motor vehicle tax	Total
Small cars <1200cc	12.50%	1.1%	14%	Varies from state to state	Varies from state to state	Approximately 28%
Mid-sized cars (1200cc-1500cc)	24%	1.1%	14%	Varies from state to state	Varies from state to state	39%
Luxury cars >1500cc	27%	1.1%	14%	Varies from state to state	Varies from state to state	42%
SUV’s >1500cc, >170mm ground clearance	30%	1.1%	14%	Varies from state to state	Varies from state to state	45%

In the pre-GST tax regime, VAT was imposed upon used car sales. There was no composite rate and Excise/VAT was not charged against advance received for goods supply in some states. States had various incentive schemes for the Original Equipment Manufacturers (OEMs).

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This scheme primarily included subsidies and interest-free loans. VAT was also levied on sales. Goods or services sold without consideration were free of VAT or service tax.

Dealers or importers were not eligible for CVD and excise duty paid by the Original Equipment Manufacturers (OEMs). Excise duty was applicable when goods were transported from the factory. However, VAT/CST was not applicable under the previous tax laws.

GST Rates on Cars in India

Since GST became effective on July 1^st, 2017, its objective has been to smoothen the tax process. It reduces the burden of tax, catalysing transparency in the automobile industry. Depending upon the type, GST rates on vehicles may vary. The GST Council declares the rates and it includes additional cess on SUVs and luxury cars.

GST has significantly simplified the tax structure by subsuming multiple taxes into one universal tax. It, therefore, has also cut down the selling prices of vehicles for consumers besides making it easier for the Indian government to collect tax.

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GST on Cars by Category

The following table illustrates the GST rates for various types of cars concerning price, size and engine capacity:

Type of Vehicle	GST Rate	Additional Cess	Total Tax Rate
Small cars <1200cc <4m length	28%	1-3%	29-31%
Mid-sized cars >4m length	28%	15%	43%
Luxury cars >1500cc, >4m length	28%	20%	48%
SUVs >1500cc, >4m length, >170m ground clearance	28%	22%	50%
Electric vehicles	5%	Nil	5%
Ambulances	12%	Nil	12%
Hybrid cars	28%	15%	43%
Refrigerated Motor Vehicle	18%	Nil	18%

GST on Cars by Fuel Type

The GST rates on vehicles vary depending on the type of fuel they use. Read the table below to understand the various rates of GST on vehicles running on different types of fuels:

Type of Vehicle	GST Rate	Additional Cess	Total Tax Rate
Petroleum gas/CNG/LPG cars <1200cc <4m length	28%	1%	29%
Petrol/CNG/LPG cars <1200cc >4m length	28%	15%	43%
Petrol/CNG/LPG cars >1200cc	28%	22%	50%
Diesel cars <1500c <4m length	28%	3%	31%
Diesel cars <1500cc >4m length	28%	20%	48%
Diesel cars >1500cc >4m length >170m ground clearance	28%	22%	50%
Motorcycles <350cc	28%	0%	28%
Motorcycles >350cc	28%	3%	31%
Three-wheeler motor vehicles	28%	0%	28%
Fuel cell vehicles	12%	0%	12%

Effects of GST on the Automobile Industry

Automotive industry witnessed a positive GST impact. The commercial vehicle segment has witnessed a significant reduction in tax rate under GST, as compared to the pre-GST era. It is now 28% instead of 30-33%. Most aspects of the GST regime focus more on consumption than origin. This has opened doors to significant growth for the vehicle sector.

However, GST has impacted less on non-commercial vehicles. Luxury cars and SUV sales have dropped due to high additional cess rates. Transfer of vehicle ownership has applicable GST, irrespective of intra-state or interstate sales.

The GST system not only offers benefits to manufacturers but also to consumers and dealers or importers. Read on to know how at each stage GST facilitates higher consumption of vehicles.

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Impact on Consumers

In the pre-GST scenario, two taxes were levied. One of them was excise and the other one was VAT. The combined rate of the two taxes put together was 26.5% to 44%. The GST tax rate applicable is 18% and 28% is much lower than that. Therefore, consumers have less of a consumer tax burden under the GST regime. This also helps to reduce the cascading effect of taxation.

Impact on Manufacturers

The GST system consolidates all previous taxes under one tax. This brings down the manufacturing cost of vehicles by a wide margin. This has led to more production under GST.

The improved supply chain mechanism under GST is highly efficient. The discard of state-level taxes has made transportation from one state to another easier. This has also reduced the time taken for transit and costs. This in turn leads to cheaper operating costs for manufacturers.

Impact on Dealers and Importers

Dealers and importers can claim GST paid on goods that are sold or imported. That helps them too as previously, they were unable to claim excise duty and VAT paid. According to the previous tax laws, importers or dealers were not eligible to claim the tax paid on such goods.

The GST system also lets importers and dealers claim input credit mechanisms, unlike the previous tax laws. Under GST, the excise paid on stock transfer is covered by IGST. On the other hand, the advance for supplying goods is liable to tax payment too as per GST rules.

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Calculating GST on Cars

The GST calculation for cars requires a proper understanding of the GST rate along with any additional cess applicable. These rates vary depending on the type of vehicle. The formula for calculating tax on automobiles goes as follows:

Total Tax = Ex-showroom Price × (GST Rate + Cess Rate)

GST Exemptions for Cars

Although most categories of vehicles are subject to GST, there are particular exemptions and concession rates for some vehicles.

Electric cars are taxed at a lower rate of 5% compared to other fuel vehicles. This initiative promotes the consumption of environment-friendly automobiles.

The GST rate on ambulance vehicles is 12%. This low rate has been declared keeping in mind their contribution to the medical services they offer. It ensures easy access to ambulances for healthcare service providers at a cheaper purchase price. Thus, this exemption facilitates smoothed medical transportation.

Vehicles used by handicapped persons, such as wheelchairs, are also eligible for exemption from GST. There are certain criteria set by the government. If they meet those conditions, they can apply for exemptions. The initiative aims towards the betterment of the lives of those who are physically disabled in any way.

The government also offers an exemption of GST on purchasing a used car from an unregistered dealer.

Is Now a Good Time to Buy a Car?

According to experts, the prices of mid-segment vehicles might see a rise. On the other hand, small diesel-powered vehicles are likely to be affected the most. Individuals can expect an increment in the prices of the same.

Luxury SUVs, meanwhile, are said to be coming up with exciting offers. They will reduce the buying prices of their brands a lot compared to their usual prices.

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The Bottom Line

The impact of GST on the automobile sector is an interplay of market dynamics, regulatory changes and consumer behaviour. It has brought greater transparency and uniformity of vehicle prices across the country. Consumers now find it easier to understand the taxable component of vehicles while automobile industries witnessed a greater distribution network.

FAQs

How has GST affected the automobile industry?

GST has simplified the tax structure in the automobile industry by subsuming multiple indirect taxes like VAT and excise into one unified tax. This has reduced the tax burden on manufacturers and consumers, making vehicle prices more transparent and uniform across states. The GST has also improved supply chains by eliminating state-level taxes, reducing transportation time and costs. However, higher cess on luxury cars and SUVs has led to a decline in sales in that segment.

What is the impact of GST on industry sector?

The introduction of GST has streamlined the taxation process across all industries, reducing the complexity of multiple indirect taxes. It has encouraged smoother interstate trade by removing state-level taxes, thus improving supply chain efficiency. Manufacturing costs have generally decreased due to the elimination of cascading taxes. However, certain industries, like luxury goods, may face higher tax rates due to additional cess.

What is GST on automobile parts?

GST on automobile parts is generally set at 18%, though specific components like batteries and some accessories may attract different rates. The unified GST system has replaced multiple taxes that were previously levied on automobile parts, making the taxation more transparent and uniform across the country. This has simplified compliance for manufacturers and dealers. The input tax credit under GST has also benefited businesses by reducing the overall tax burden.

What is the effect of GST on telecom sector?

The GST rate on telecom services is set at 18%, which is higher than the previous tax structure. This has increased the cost of telecom services for consumers. However, telecom companies can now claim input tax credits, which helps offset some operational costs. The overall effect of GST on the telecom sector has been mixed, with increased service costs but streamlined taxation and improved compliance.

What is the impact of GST on mobile industry?

Under GST, mobile phones are taxed at 18%, which is slightly higher than the previous tax regime. This has led to a marginal increase in the prices of mobile phones for consumers. However, manufacturers and dealers benefit from the ability to claim input tax credits, which helps reduce their overall tax liabilities. The unified GST system has also made cross-state trade easier for mobile manufacturers and retailers.

What is the impact of GST on manufacturers?

GST has significantly reduced the tax burden on manufacturers by consolidating multiple taxes into a single tax structure. This has led to lower production costs, improved supply chain efficiency, and easier interstate transportation of goods. The availability of input tax credits has further reduced the overall tax liability for manufacturers. As a result, many sectors have seen increased production under GST.

What is the GST for automobiles?

The GST rate on automobiles varies by type and size of the vehicle. Small cars are taxed at 28% with an additional cess of 1-3%, while mid-sized and luxury cars attract an additional cess of 15-22%, making the total tax rate up to 50% for SUVs and luxury vehicles. Electric vehicles enjoy a lower GST rate of 5%, reflecting the government’s push for green mobility. Ambulances are taxed at 12%.

Is GST increase on cars?

No, the GST on cars has remained consistent since its implementation, though the rates vary based on the type and size of the vehicle. The base GST rate for most cars is 28%, with an additional cess applied to luxury cars and SUVs. While there have been discussions about rate changes, there has been no significant increase in the GST rates for cars since its rollout.