On Thursday, when Hyundai launched the Era variant in the i20 – priced Rs 5.99 lakh, ex-showroom – there were discussions on the social media about the carmaker responding to the Maruti Suzuki Baleno (Sigma), which is priced Rs 5,98,900 lakh.
But those who understand how taxation works know that it’s a masterstroke in price planning – avoiding the tax cliff.
Tax cliffs
When you buy a car, the road tax is calculated on the ex-showroom price, and in most states this tax bracket changes at multiple price points – one such is Rs 6 lakh.
The math
In Delhi, a petrol-engine car priced under Rs 6 lakh attracts 4% road tax, and cars over Rs 6 lakh are taxed at 7%. This means that for a car priced Rs 5,99,999, you will have to pay Rs 24,000 road tax, but if you add accessories worth just Rs 2, pushing the price to Rs 6,01,001, the road tax will jump to Rs 42,000.
Other thresholds
Another such threshold is Rs 10 lakh, above which petrol cars are taxed 10% and diesel at 12.5% (in Delhi) – this is why Mahindra famously launched the Thar RWD at Rs 9.99 lakh, and this is why mid-spec variants of many SUVs are priced Rs 9.99 lakh.
What did Hyundai do?
To hit this magic number, Hyundai played a smart game. It kept premium features – six airbags, digital instrument cluster, front and rear skid plates, bodycolour ORVMs and door handles, Type-C USB charger, and telescopic steering – but removed the touchscreen infotainment system, which is available as a dealer-installed option for Rs 14,999 backed by a three-year warranty. Thus, the touchscreen becomes a dealer accessory after the registration is complete, making the car escape higher taxation.
Rs 14,999 for a touchscreen
This Rs 14,999 figure is another masterstroke in psychology and finance – it feels significantly cheaper than Rs 15,000, but more importantly, in many corporate and government reimbursement schemes, Rs 15,000 is the limit for minor expenses, not needing detailed permissions.
What about warranty?
Most carmakers have a strict policy – if you cut a wire anywhere in the car, you kill the warranty. That’s why, for fitting the touchscreen in the i20 Era, no wires are cut.
Instead, the car comes from the factory with a specific plastic socket (female coupler). The official Rs 14,999 touchscreen comes with a matching plastic plug (male coupler). The technician simply snaps them together until they ‘click’.
Warranty stays.
What’s in for the buyer?
The Rs 5.99 lakh i20 Era – with the inclusion of vital safety gear – is a great proposition for the buyers, because the next variant (Magna Executive for Rs 6,73,900) will give them more features, but a large portion also goes to the government.
Any other examples?
Maruti Suzuki’s flagship car, the Invicto, is priced starting Rs 24,97,400. Because it’s an executive car, to be used by corporate honchos, the pricing targets the HR policy. Most Indian companies and MNCs have car lease brackets for their executives, which usually is like this: managers (up to Rs 15 lakh), senior managers or AVPs (up to Rs 20 lakh), and vice-presidents or directors (up to Rs 25 lakh). If the Invicto was priced Rs 25.01 lakh, thousands of high-earning corporate directors would be disqualified from choosing it as their company car. By pricing it a shade below Rs 25 lakh, Maruti Suzuki has ensured it fits into the senior leadership bucket of almost every company.
