GST effect on auto: Here’s what will become expensive and what will get cheaper

There have been many predictions on what the upcoming Goods and Services Tax holds for the Indian automotive industry. We explain how much will it affect which segment across the two-wheeler, passenger and commercial vehicle categories

By: | Updated: June 27, 2017 5:05 PM

 

There is a lot of confusion right now on how much various things will cost after implementation of GST (Goods and Services Tax) and automobiles are one of them. Various manufacturers are offering pre-GST discounts but some aren't. This creates confusion for a potential buyer as to which vehicles will get cheaper and which ones won't.  While the GST proposal seems beneficial largely, small cars aren't going to witness much of a change in prices after GST, while luxury cars will get cheaper. In order to clear the confusion and help you decide on whether to buy right now or wait, here's a complete break-up of what the upcoming GST structure holds for each category in the automotive sector.

 

Two-Wheelers

The classification of two-wheelers has been done in two types, those with the engine capacity of less than 350 cc and those with greater than 350 cc. A total of 30.2 percent tax, which includes Excise Duty at 12.5 percent, NCCD at one percent (National Calamity Contingency Duty), VAT at 12.5 percent (Value Added Tax) and CST two percent (Central Sales Tax) brings the total tax rate to 30.2 percent. After the implementation of GST, two-wheelers under 350 cc would incur a tax of 28 percent while those higher than 350 cc would be subjected to around 31 percent tax. So, while a Royal Enfield Classic 350 would cost less, a Classic 500 might become more expensive. That said, the difference in the new tax scheme would not be significant and hence will not affect the buying sentiment of the sector in the long-run.

 

Two Wheelers
  Before GST After GST
Engine size below 350 cc 30.2% 28%
Engine size more than 350 cc 30.2% 31%

 

Commercial Vehicles

The commercial vehicle category is classified into two parts, commercial vehicles and three-wheelers. The tax structure before the implementation of GST officially includes 12.5 percent Excise Duty, one percent NCCD, 12.5 percent VAT and two percent CST bringing it to a total of 30.2 percent for the commercial vehicle category. Three-wheelers are not taxed for NCCD, which means a total of 29.2 percent tax is levied on them. With the implementation of GST, a new category for buses which can ferry up to 13 passengers would also be introduced. The new tax structure would mean that commercial vehicles would see a small dip of 2.2 percent from 30.2 percent to 28 percent. Three-wheelers would witness a slight reduction of 1.1 percent from 29.1 percent to 28 percent.
The new category of buses that can ferry up between 10 and 13 passengers incurs a total effective tax of 30.2 percent right now and will now witness a considerable jump with the new tax structure to 43 percent. Overall, the commercial vehicle sector will stay unaffected and potential buyers of buses with load carrying capacity of 10 to 13 passengers would see a considerable rise of 12.8 percent tax.

 

Commercial Vehicles
  Before GST After GST
Commercial Vehicles 30.2% 28%
Buses with 10 to 13 passenger capacity 30.2% 43%
Three wheelers 29.1% 28%

 

Passenger Vehicles

 

 

This category has the most number of segregations based on length of a vehicle as well as engine capacity. The pre-GST tax structure included Excise Duty, NCCD, Infra Cess, CST and VAT. However, with the new tax structure implementation, it would only be GST and additional cess based on the vehicle's segment.

Sub-4 metre petrol cars, which were taxed at about 31 percent would incur 29 percent tax, while their diesel counterparts would incur 31 percent after the implementation of GST as opposed to roughly 33 percent. This would translate into a small change for the small car buyer, which won't have any impact on the overall buying mood of consumers across the country.
Mid-sized cars that are above four metres in length but less than 1,500 cc in engine capacity, as well as cars with more than 1,500 cc engine capacity, will witness a considerable dip. While the former is taxed at 46.6 percent and the latter at 51.8 percent, the revised tax structure would enable these cars to be taxed at 43 percent. The case for SUVs is also similar as they would incur a tax of 43 percent compared to the 55.3 percent right now, translating into a drop of 12.3 percent. Certain manufacturers including luxury carmakers such as BMW and Audi as well as Utility vehicle only manufacturers such as Isuzu have already started to pass the benefits of GST to potential customers. The only segment here which would witness a considerable rise in taxes is hybrid cars, wherein after including Excise Duty, Infra Cess, NCCD, CST and VAT the total figure came to about 30 percent. Now, with the implementation of GST, these cars would incur 43 percent tax, which is considerably higher.

 

Passenger Vehicles (Four Wheelers)
Before GST After GST
  Base Rate Cess Effective Rate
Small Cars Below four metres (Petrol) 31.4% 28% 1% 29%
Small Cars Below four metres (Diesel) 33.4% 28% 3% 31%
Mid-size cars more than 4 metres but less than 1,500 cc 46.6% 28% 15% 43%
Bigger Cars more than 4 metres and 1,500 cc 51.8% 28% 15% 43%
SUVs 55.3% 28% 15% 43%
Hybrid 30.3% 28% 15% 43%

 

While the theory of 'one country one tax' is better for a number of segments, it is also in contradiction to the Government's move of going green in terms of mobility solutions as it makes hybrid cars considerably more costly. This would make it harder for manufacturers to encourage potential buyers to purchase hybrid cars over their regular counterparts. This may prove to be detrimental to the popularity of hybrid cars as the GST plus additional cess tax structure for such cars is the same as SUVs and other higher categories, translating into no monetary motivation for the consumers.

  1. P
    Prashant Donekal
    Jul 2, 2017 at 12:46 pm
    Cess is usually defined as tax on tax and not a direct addition to the tax. In of the above cases, a cess of 15 would add 4.2 to 28 , so total tax would be tax cess, 32.2 and not 43 . Please educate yourself and others, not just blindly publishing articles
    Reply
    1. P
      Prashant Donekal
      Jul 2, 2017 at 12:44 pm
      cess is usually defined as a tax on tax, not a direct addition to taxes. For example in one of the above cases, the addition of cess should increase the tax of 28 by 15 (28), so total tax would be 28 4.2 32.2 and not 43 .
      Reply
      1. K
        Kshvchandel
        Jul 1, 2017 at 8:27 am
        I can't belive this on hybride car i think thise decsion is not good bcz hybrid car are good for our envirment and the ratio of tex which is shown in the fig is so surprize this is wrong it think
        Reply
        1. K
          Kumar
          Jun 29, 2017 at 8:26 pm
          Surprised and Shocked to hear Hubrid cars to attract more taxes.. Rathen than pushing Hybrid cars making it expensive is going against the tide..
          Reply
          1. T
            Tuhinanshu Singh
            Jun 29, 2017 at 6:36 pm
            "The tax structure before the implementation of GST officially includes 12.5 percent Excise Duty, one percent NCCD, 12.5 percent VAT and two percent CST bringing it to a total of 30.2 percent" Don't you think the total should be 28 instead? And VAT has always been 14.5 isn't it? Please clarify my query!
            Reply
            1. A
              A
              Jun 28, 2017 at 4:00 pm
              The incentive should be for pure electric cars, commercial vehicles and buses. That is the right way to go
              Reply
              1. M
                mahesh
                Jun 27, 2017 at 5:19 pm
                celaning products has been kept in 28 ,which aginst the policy of clan environment including toilet cleaner
                Reply
                1. Load More Comments