Come tomorrow and the new Goods and Service Tax Bill (GST) will be in effect across the Indian sub-continent. The implementation of this new taxation scheme will help streamline the tax structure in our country. The GST will also have a direct effect on the prices of automobiles as well. Talking about cars in general, after GST each category of a four-wheeled vehicle will impart a 28 percent tax rate as standard. Not only this, depending upon which category the vehicle falls into, there will also be an additional cess. Before GST comes into effect, automobile manufacturers have already started giving the benefits to the end consumers in the form of huge discounts. There is a lot of confusion on as to which car is going to attract what tax under the new GST scheme and also which ones are to become cheaper while whose prices are to climb up. In order to solve the problem, here we bring you a segment wise break-up of how GSt is going to effect car prices in India. Also Read: GST effect on cars: Discounts up to INR 1 lakh on Mahindra XUV500, Maruti WagonR, Hyundai Grand i10 & othersAlso Read - GST Collection In November Soars To Over Rs 1.31 Lakh Crore
“Despite of Automobile sector being one of the most promising contributor to economic growth, it has been facing the whip of increased tax rates and multiple cess for a substantial time now and even GST doesn’t seem to help much. The Industry doesn’t seem to relish the idea of levying the highest slab rate of 28% on all categories of vehicle regardless of the engine capacity or length. Likewise, parts and accessories for such automobile have also been placed in the same bracket of 28%.” said Gautam Khattar, Partner – Indirect Tax, PwC. Also Read: GST effect on cars: Discount of INR 70,000 on Maruti Suzuki S-Cross; S-Cross facelift to launch in India by October 2017 Also Read - Swiggy, Zomato Will Now Pay GST on Restaurant Services Supplied Through Them, Says Sitharaman
Breaking it down, due to the GST effect, Indirect tax incidence on two wheelers as well as small cars which are less than 4 meters is to largely remain the same as present, with GST rate at 28 percent. However, there will be an additional cess of 1 percent for small petrol cars (less than 1200 cc) and 3 percent for small diesel cars (less than 1500cc) as well as high end motorcycles (less than 350cc) would apply. This could possibly see a minor effect on the sales of entry level small cars and motorbikes. Also Read: GST impact on bikes: Honda two-wheelers to get cheaper from July 2017 Also Read - Ordering Food Through Zomato, Swiggy To Become Costly Soon As Govt Panel Moots GST On Aggregators
Coming to large cars and SUVs, these are likely to benefit out of the GST scheme, as effectively the indirect tax is to be lower for this category. At the moment, vehicles in this category attract a tax of 50 percent, after GST the same will come down to 43 percent. This includes 28 percent of GST along with an additional cess of 15 percent. Also Read: GST effect on bikes: Discounts on Bajaj V15, Discover, Pulsar upto INR 4500; Dominar 400 price unchanged
Giving respite to the electric vehicle category, the GST on this segment has been kept at the lower rate band of 12 percent. However, the manufacturers of such vehicles would face an inverted duty structure with major inputs liable to GST at either 18 or 28 percent. Though refund of excess input GST would be available, there could be significant working capital blockage for such sectors. Also Read: GST effect on cars: Maruti Suzuki Ciaz, Ertiga to get costlier by upto INR 1.5 lakh
What comes as a surprise though is that the Hybrid vehicles have been kept in the same cess bracket as that of luxury cars, which is of 15 percent. This in addition to the 28 percent GST takes the total tax up to 43 percent. This could act as a dampener for OEMs proposing to invest in hybrid technology and adversely impact sale of such vehicles, unless a subsidy is separately given by the Government to offset such tax incidence.
While auto parts are proposed to be taxed at 28 percent GST. This could push up cost of after-sales service/ maintenance of vehicles, coupled with a possible increase in tax rate for services as well from 15 percent to 18 percent.