Last Updated on – 14 September, 2017

GST Impact on Car Prices in India

As we all know, the Indian economy has witnessed a drastic change in the form of the Goods and Services Tax (GST) on 1 July 2017. And, all the aspects which any how to relate to the taxation faced the impact of GST implementation. To make the GST easily understood, the Council had rolled out a list of more than 1200 items on May 18, which were categorized into five segments, attracting different tax rates including 0%, 5%, 12%, 18% and 28%.

Under GST regime, a lot of important items become inexpensive. While automobile sector faced mix effects. Under this new tax structure, the standard tax rate for the car was 28% and some additional cess.

while addressing this huge change in taxation, Sarika Goel, Tax Partner, EY India, said “While the GST Council debated GST rates for vehicles, no consensus was reached on the same during today’s meeting. While the taxation of luxury vehicles is widely being expected at 28% plus a cess of 15%, what is interesting to note, that as per the media reports, the Council seems to be considering levy of a cess even on small cars in addition to GST at 28%, albeit at a much lower rate compared to luxury vehicles. Definition of what would classify as small cars and luxury cars respectively is also awaited – it appears likely that the same would be based on engine capacity, length etc rather than the retail price. The FM, during the press conference post today’s meeting, mentioned industrial intermediates being taxed at 18% GST; however, it is not yet clear whether auto components would fall under this category.”

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After about 2 months, the GST rates had been revised including mid- sized, luxury and SUV cars which observe a hike in rates owing to increased cess. Post impose new rates, the cess on mid-sized cars increased by 2 percent and the effective GST rate become 45 per cent. The large cars observed a growth of 5 per cent taking the effective rate to 48 percent, while the SUVs rated 7 percent costlier and taken the total GST incidence to 50 percent.

Other than this, under revised cess, rates small petrol and diesel cars along with hybrid cars have been exempted from the increase in cess rates.