Explained: GST For Cars

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  • May 19, 2017
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The proposed GST rates clearly show a push for electric vehicles. Sadly, there won’t be any benefits for hybrids of any kind.


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Ever since taking charge, the Narendra Modi-led BJP government has slowly worked towards to implementing a simplified tax structure. In an attempt to abolish the dozens of taxes levied by states and the Centre, the council has decided to eliminate them and opt for four simple groups. The slabs are set at 5, 12, 18 and 28 per cent, and the council decides what products fall under these categories.

The 28 per cent bracket is the highest in the Goods and Services Tax (GST) structure, and all that’s seen as a luxury fall under this slot. Unfortunately, cars are still considered as a luxury, and they enter the highest slab. That's not all. An extra cess of 1, 3 or 15 per cent is also proposed to be slapped on top of the GST based on how the car is classified.

Small petrol and diesel cars will pay a 1 and 3 per cent of additional cess, respectively. Those classified under the 'luxury' category will pay 15 per cent of cess on top of the GST. However, the definition of a small car and a luxury car under the new regulations is still unclear.


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Current excise duty slabs are as follows:

- 12.5 per cent: Length < 4m and engine displacement < 1.2-litre (petrol) and < 1.5-litre (diesel)

- 24 per cent: Length > 4m and engine displacement < 1.5-litre (petrol and diesel)

- 27 per cent: Length > 4m and engine displacement > 1.5-litre

- 30 per cent: Length > 4m and engine displacement > 1.5-litre and ground clearance > 170mm


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The total tax on a car excluding registration and RTO fees currently ranges from 26 to 49.5 per cent based on its dimension and displacement. Owing to the multi-level cascading nature of our current tax system, the percentage of the overall tax paid stands at a much higher figure than what a simple sum would suggest.

According to the new rules, it could range from 29 to 43 per cent with a maximum of two levels for all cars with an internal combustion engine. That's an increase of 3 per cent on the lowest and a drop of 6.5 per cent at the highest end of the spectrum. Therefore, the proposed GST rates will narrow the gap between the prices of small and big cars. This could result in a price rejig, especially in the Rs 7-12 lakh price bracket where 'small' and 'big' cars co-exist.

To give an example, a Honda WR-V buyer, who could also be eyeing the Hyundai Creta, will now be able to afford the latter thanks to the narrower price gap between the two. Entry-level hatchback buyers, however, will have to shell out more, but upgrading to a bigger, and potentially a safer car, will now become easier.


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On a big car like the Toyota Fortuner, a buyer currently pays:

- 30 per cent excise duty

- 4 per cent infrastructure cess

- 12.5-14.5 per cent VAT (varies from state to state)

- 1 per cent green cess (applicable in some states)


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On a small like a Maruti Suzuki Swift petrol, the current tax structure is as follows:

- 12.5 per cent excise duty

- 1 per cent infrastructure cess

- 12.5-14.5 per cent VAT (varies from state to state)

The registration and road tax is expected to remain unaffected by the new GST norms. These charges vary from state to state and currently range between 3 and 23 per cent.


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Differently-Abled To Benefit

There's good news for the differently-abled, though. Cars registered under the 'invalid carriage' category will fall under the GST's 18 per cent slab. As the state-run public transport in our country isn't very friendly towards the disabled, making a car more affordable instead can be considered a positive move.


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Electric Vehicles To Become Cheaper

Electric passenger cars, two-wheelers and three-wheelers get further relaxation as they enjoy the 12 per cent tax slab. That makes them at least 17 per cent cheaper given that they also don't have to pay the additional cess. So far, EVs were at an advantage of 6.5 per cent over their fuel-guzzeling counterparts. Depending on how a luxury car is classified, a Tesla Model S or something along those lines could end up with a 12 per cent or a 27 per cent tax before registration comes into play. The initiative will certainly give a push to mass-market electric vehicles of all shapes and sizes.


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Party Over For Hybrids?

While the proposal clearly specifies a lower tax slab for electric cars, there's no such provision for a hybrid vehicle. Till date, hybrid cars were enjoying a lower excise duty of 12.5 per cent, same as the Tata Nano's excise rate. While the proposal shows a push for electric vehicles, it pays no regard for hybrid vehicles. The government apparently wants buyers and manufacturers to pick a side and is willing to give a tax break for those who choose the electric route. No concessions for staying midway. So expect the Maruti Suzuki Ciaz and Toyota Prius to get pricier.


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