GST Rates for Automobiles – The Good, the Bad and the Ugly
Ever since GST rates have been announced, potential buyers of passenger vehicles have been wondering – whether they stand to gain or lose, if they buy one in the GST era. In this blog, we will demystify, how the automobile sector fares, on the basis of the GST rates declared by the GST council.
Taxes in the old regime
In the old regime, automobiles attracted excise duty – ranging from 12.5% to 27% (based on the engine capacity and car size); additional duties of excise i.e. NCCD at 1%; automobile cess at 0.125%; infrastructure cess – ranging from 1% to 4% (based on car type) and finally VAT at 14.5% on an average – which too differs from state to state.
GST rates for automobiles
Under GST, all the taxes currently levied on motor vehicles, will be subsumed under a single tax rate of 28%, bundled with an additional cess – in the range of 1% to 15%, which has been defined by the GST Compensation Cess rules, as follows –
|Automobile Type||Length||Engine Capacity||Cess Rate|
|Small Car||Less than 4m||Less than 1200 cc||1%|
|Small Car||Less than 4m||1201 cc – 1500 cc||3%|
|Mid Segment Car||More than 4m||Less than 1500 cc||15%|
|Large Cars||More than 4m||More than 1500 cc||15%|
|Hydrogen vehicles (based on fuel cell technology)||More than 4m||15%|
|Motorcycles||More than 350 cc||3%|
|Motor Vehicles (Capacity 10 to 13 persons)||15%|
At an initial glance, it does come across, as if the taxes have gone up. But if we do a quick comparison of the rates levied on motor vehicles, between the current regime and GST –
|Type of Car||Excise duty||NCCD||Infra Cess||Automobile Cess||VAT||Total Tax (Approx.)||GST||Additional Cess||Total Tax (Approx.)|
|Small Cars||12.5 %||1 %||1 %||0.125 %||14.5 %||31 %||28 %||1% – 3%||29 % – |
|Luxury Cars||27 %||1 %||4 %||0.125 %||14.5 %||51 %||28 %||15 %||43 %|
Due to the cascading nature of taxes in the current regime, a buyer of a small car is subject to almost 31% of tax, while that of a luxury car is subject to almost 51% of tax. However in the GST era, taxes will no longer cascade. In spite of being bracketed under the highest tax slab, buyers of small and mid-sized segment automobiles will continue to pay almost the same rate of tax. The real boost however, will be for those aspiring to go for luxury vehicles, who could enjoy a potential reduction of almost 8 percentage points in the tax rates – and it will indeed be no surprise if we start spotting more Audis and Mercs flooding the Indian streets, in the time to come.
However, it is interesting and encouraging to note that a differential rate of GST has been introduced for electric vehicles – which have been taxed at 12% GST. Electric vehicles have conventionally borne a reduced excise duty of 6%, and also enjoy reduced VAT rates of 5% in most states – and the benefit will definitely continue in the GST era. Overall, a reduced GST rate, should provide an impetus to electric mobility across India, and is a clear sign of the Government encouraging environmentally friendly technologies.
Given, that hybrid vehicles run on a mix of electric power and conventional fuel i.e. petrol or diesel – it is actually a bit surprising that hybrids have been placed at the highest cess rate of 15%, irrespective of capacity. The fact that both mid-segment hybrid vehicles (less than 1500 cc) as well as high-segment hybrid vehicles (more than 1500 cc) will now effectively fetch a tax of 43% – has not gone down well, with most hybrid vehicle manufacturers, as well as consumers planning to go hybrid.
In stark contrast to the automobile segment, traders are not too happy about the GST rates rolled out for car parts, tractor parts and car accessories – which have been slotted at the highest slab of 28%. Given that in the current regime, spare parts undergo an excise of 12.5% and a VAT of 5% in most states, an effective tax rate of 18.13% in the current regime will jump to 28% in the GST regime. This hike is likely to affect growth of business dealing in spare parts and is also likely to hit the industry at large.
While there will be significant advantages because of the removal of cascading taxes, the industry overall is bound to get effected due to the high tax on inputs, namely the parts. With luxury vehicles and electric vehicles at an advantage, most standard vehicles maintaining the taxation status quo and hybrids and auto parts at a disadvantage, the GST rates sure have come across as a mixed bag for the automobile industry.
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Author: Pramit Pratim GhoshPramit, who has been with Tally since May 2012, is an integral part of the digital content team. As a member of Tally’s GST centre of excellence, he has written blogs on GST law, impact and opinions - for customer, tax practitioner and student audiences, as well as on generic themes such as - automation, accounting, inventory, business efficiency - for business owners.
Pramit Pratim Ghosh
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