How is GST Likely to Affect Car Prices

| June 29, 2017 | 0 Comments

With the new Goods and Service Tax (GST) set to roll out in July, potential car buyers in India are in a state of dilemma. They are unable to decide if they should buy their dream car now or wait for the revised prices.

This is the story of almost every Indian, including Akshay Mahale, an IT professional from Pune. He was saving money to buy a Maruti Suzuki S-Cross for the past two years.

Now after the One Nation One Tax reform (GST), he is confused about his purchase. So let’s discuss what is GST and how will it impact automobile sector.

What are The Different Car Segments?

Depending on the length and displacement, the Indian government has categorized cars into four categories: The first category is low-end hatchbacks that run on either petrol or diesel.

Less than four meters in length, they might cost from Rs.2 lakh to Rs.5 lakh. The next category is mid-segment cars, which cost between Rs.6 lakh to Rs.10 lakh. In the third category lay luxury cars, with a starting price of Rs.20 lakhs that can go into eight digits. The last category is SUVs, where the tax rate is demarcated upon ground clearance.

Current Scenario and Tax Breakdown

Currently, there is no uniform slab rate that governs the tax pricing of cars. There are various taxes like excise, VAT, Octroi and Green Cess in select states. The total tax can vary from 26% to 55% based on the car’s segment.

According to existing rules, a small car in the petrol category will have 12.5% excise tax. VAT can vary from 12.5% to 15%, Infra Cess of 1% is levied and the Octroi tax depends on the state the car is registered in. The total tax levied is 26% to 30%. But as we all are expecting that implementation of GST will change this tax system.

How Does the GST Bill Affect Car Prices?

Nowadays everybody is concerned about that Impacts of GST.  All categories are fixed at a uniform slab rate of 28% and the additional cess is added to the base price. Location-based taxes, such as Octroi have been abolished in lieu of a single uniform tax.

Small and medium category cars may face a hike of 1% to 2%, compared to the previous price. But here’s some good news! Luxury cars and SUVs are going to get cheaper.

Hybrid vehicles, which previously had 12.5% excise duty, are going to become expensive, as the government has decided on a 43% tax rate under the new scheme. Hence, cars like Toyota Camry and Maruti Suzuki Ciaz are going to get significantly costly.

And Akshay? He will need to spend an extra Rs.20,000 to Rs.30,000 on his S-Cross if he buys it after the bill is implemented.

In the SUV category, cars like Toyota Innova and Mahindra Xylo will be cheaper. Luxury car fans rejoice! Cars from BMW and Jaguar will face a rate cut between Rs.80,000 to Rs.1 lakh.

To Sum It Up

With increased pollution and fast exhausting natural reserves, the government has made it easier for electric cars like Mahindra e20 Plus to be manufactured and distributed across India.

The tax rate for electric cars has been set at 12%. With such low rates, new entrants like Tesla and other electric car manufacturers are sure to be delighted. The manufacturers of eco-friendly vehicles can enjoy an upper hand in the already saturated market and pave the way for a green India.

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Category: Car Purchase

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