The Goods and Services Tax, commonly known as GST, was actively implemented on 1st July 2017. This taxation scheme was introduced to centralise the tax collection process by eliminating the other indirect taxes. As a result, almost every product or service like GST on mobile phones, food items, etc. including cars and other automobiles in the country.
GST on car slab starts from a 5% slab rate, with a maximum of 28% slab rate. Generally, companies implement 28% GST on cars purchased for commercial and personal use. However, the 5% slab rate can be availed on cars that are designed for specially-abled citizens of the country.
Apart from 28% GST on cars, the buyers also have to pay a compensation cess of up to 22%. A compensation cess is an additional tax levied by the GST Act on certain goods and services. Thus with the introduction and implementation of the GST Act 2017, Indian citizens pay 45-50% of tax on every car purchase.
GST on Cars
The automobile industry is quite vast, and even if one tries to understand the impact of GST on cars, it is important first to categorise and then analyse its impact. The three prominent categories are –
- Personal Use Cars
Cars that are used for personal usage include electric cars, hydrogen fuel technology, etc. However, the GST Act includes other vehicles like bikes, bicycles, tricycles, baby carriages etc., under the cars for personal use category. Thus, one finds a broad bracket of tax slabs starting from 5% – 28%.
- Vehicles Under 5% Tax Slab
- Electric bicycles, tricycles, bikes, rickshaws, etc.
- Vehicles that use hydrogen fuel technology
- Non-motorised bikes and bicycles
- Vehicles Under 18% Tax Slab
- Cars designed for specially-abled citizens
- Baby carriages and prams
- Vehicles Under 28% Tax Slab
- Petrol or Diesel enabled cars to include station wagons, racing cars, etc.
- Bikes (includes one with sidecars)
**Note – The GST is applicable on the spare parts and accessories of the vehicles as per the vehicle category.
- Commercial Use Cars
Commercial vehicles include taxis, buses, tractors, trucks, etc., that either generate income or are used to facilitate the process of generating income. GST on cars used for commercial use has a slab range between 12% -28%.
- Vehicles Under 12% Tax Slab
- Tractors that have an engine capacity of 1800cc
- Tractor trailers that can perform self-loading and self-unloading serving the agriculture activities
- Vehicles Under 18% Tax Slab
- Public transport vehicles that include buses, rickshaws, etc., functioning on biofuel
- Construction facilitating vehicles like concrete-mixer, breakdown lorries, etc.
- Work trucks used at docks, airports, etc., to transfer goods and packages
- Motor vehicles (refrigerated)
- Vehicles Under 28% Tax Slab
- Tractors that have engine capacity above 1800cc
- Vehicles with a passenger capacity of 10 people or more, excluding vehicles functioning on biofuels
- Motor vehicles (excludes refrigerated)
**Note – The GST is applicable on the spare parts and accessories of the vehicles as per the vehicle category.
- Second-Hand Cars
The second-hand car market was negatively affected by the implementation of the GST, as initially, the GST on cars and compensation cess was equivalent to the new car. Therefore, to boost the business of the second-hand car market, the GST department has now reduced the applicable GST on cars and eliminated the compensation cess.
- Vehicles Under 12% Tax Slab
- Petrol-operated cars with an engine capacity of 1200cc
- Diesel-operated cars with an engine capacity of 1500cc
- Vehicles Under 18% Tax Slab
- Petrol-operated cars with an engine capacity above 1200cc
- Diesel-operated cars with an engine capacity above 1500cc
Impact of GST Implementation on Car Prices
Before the GST implementation in India, automobile consumers used to pay around 25% -50% taxes combining VAT and other excise duties, whereas, after GST implementation, automobile consumers pay approximately 18% – 28% reducing the financial burden of the consumers.
The dealers and importers can also claim the GST on cars paid by the consumers, which was not possible in the case of VAT and excise duty. Excise duty is generally covered under the IGST of the GST law.
Recovering those taxes helps the dealers and importers to offer additional discounts on car prices from their ends. Since the tax slab bracket has been reduced, consumers will have to pay fewer taxes on the purchase of cars which will boost the sales in the automobile industry of India.
Advantages of GST Implementation on Car Prices in India
GST on cars has been proven beneficial to automobile consumers as –
- It is the single taxation system that eliminates the maximum chances of tax evasion in the country.
- There has been a rational reduction in the taxes paid by consumers during the purchase of cars and other automobiles.
- GST on cars has been classified into five categories, namely small cars, mid-size cars, luxury cars, SUVs, and electric vehicles. Each category has its tax slab rates which are quite budget-friendly.
- The spare parts and other vehicle accessories have become more affordable as, during the Pre-GST era, the taxes were added after the MRP. This increases the transactional value and makes it an expensive affair for consumers.
- GST laws are also applicable to second-hand vehicle purchases. The GST on second-hand cars is comparatively lower and has also eliminated the cess compensation.
- The manufacturers enjoy transactional subsidies from the government, which ultimately reduces their production and manufacturing costs of a vehicle. The lower the production cost of a vehicle, the more affordable it becomes for the consumers.
FAQs
- How should one calculate GST on cars?
To calculate GST on cars, apply this formula –
GST Rate * Cost of the Product / 100
- Does the MRP include GST?
The MRP of any product or service includes the GST charges. Therefore, one should not pay an additional amount over MPR as GST charges.
- What kind of tax is GST?
GST is a type of indirect tax which is included in the retail price of the product or service.
- Can I get a refund of GST on cars during the ITR filing process?
No, GST on cars or any other goods and services is non-refundable.
- What is the highest rate of GST on cars applicable?
The highest GST tax slab bracket applicable to cars is 28%.