GST Rates | Cars, SUVs Fall Under 28% Tax Bracket

The Society of Indian Automobile Manufacturers (SIAM) has welcomed the new GST Rates by saying “The rates are as per the expectations of the industry and almost all segments of the industry have benefited by way of a reduced overall tax burden in varying degree. This will pave the way for stimulating demand and strengthening the automotive market in the country, paving the way for meeting the vision laid down in the Automotive Mission Plan 2016-26.”

Sohinder Gill, Director-Corporate Affairs, Society of Manufacturers of Electric Vehicles (SMEV), said, "This was quite predictable, and is in line with what the finance minister committed to us earlier. It is favourable. However, we were very wishfully thinking that it would be kept at 5 per cent; but everything does not go by the luck."

Apart from this, the Council has also announced the GST Compensation Cess Rates for different motor vehicles. While small petrol cars will have a cess of 1 per cent, small diesel cars to attract 3 per cent cess. Mid-segment cars (engine <1500cc), large cars (engine >1500cc), and Sports Utility Vehicles (SUVs) (engine >1500cc) all have been given 15 per cent cess, thereby attracting a total of 43 per cent tax.

Considering GST will subsume infrastructure-cess currently levied on domestic passenger vehicle industry, proposed tax rate for small car is likely to be price neutral. Bigger sedans and SUVs may see lower taxation and eventually reduction in vehicle prices, despite 15 percent cess above the base GST rate of 28 percent. 

As per Subrata Ray, Senior Group Vice President – ICRA, the prices of relatively price sensitive small cars may increase marginally post GST, while OEMs would pass on the benefit of lower taxes on Bigger Vehicles and SUVs to customers.  

He further mentioned that GST rates are likely to be almost neutral for the Commercial Vehicle and Two Wheeler and would marginally increase for Three Wheelers as it didn’t attract additional NCCD earlier.

Vaibhav Agrawal from Angel Research reiterated the same thing, "While GST council has announced 28% GST on passenger vehicles, there is yet no clarity if there will be different tax slabs for different sized cars. Assuming 28% tax rate, small cars will become expensive by about 2-3% while luxury cars will become cheaper by the same extent which could be counter intuitive." 

"If we assume that the current tax slabs will not undergo any revision, we don't see any material difference on companies as these prices will be passed on to the consumers and demand will not be hit severely by 2-3% price increase." 

Though the Council has put electric vehicles under 12 per cent bracket, it does not mention anything about hybrid cars. So, analysts are guessing that hybrid vehicles will be given 28 per cent tax bracket. If that goes, then overall hybrid cars will attract 43 per cent tax, as they have been allotted 15 per cent cess.

Motorcycles with engine capacity increasing 350cc will overall attract 31 per cent tax (28 per cent GST + 3 per cent cess).

Sarika Goel, Tax Partner, EY India, said, "For small cars, the rate is pretty much closer to what the tax incidence is today. But for large cars and SUVs, it has been lowered, as currently, the tax incidence is close to 50 per cent on large cars and SUVs. The maximum rate has been announced is 28 per cent + 15 per cent, i.e., 43 per cent."

"What is worrying is that they have kept hybrid vehicles at 43 per cent and this opposes government's move to promote electric and hybrid vehicles. This could be a dampener for companies looking to invest in hybrid technology as the GST structure has kept the hybrids at par with petrol or diesel large cars," added Goel.

Tractors (except road tractors for semi-trailers of engine capacity more than 1800 cc) have been kept under 12 per cent tax bracket and cars for physically handicapped persons at 18 per cent. 

With the implementation of uniform taxation across the country, the road logistic sector will see inherent advantages with easing out of various bottlenecks and complexities involved in transportation. 

Talking about the impact of GST on logistics sector, Sumit Sharma, Co-Founder, GoBolt, said "The introduction of GST would lead to warehousing consolidation, further leading to up-sizing of vehicles, with longer distances being covered. Structural changes in logistics industry effected by GST will lead to commercial and economic efficiency. It  will help firms cut logistics cost by 1.5-2.5 percent." 

"With GST in place, goods will be able to move freely across states, and will undoubtedly demolish the obstacle of waiting hours, delays in its delivery, and thus the reduction in costs. There will be subsequent rise in warehouse mergers adopting complete automation which will be cost effective to the owners."

Telecoms and financial services will be taxed at a standard rate of 18 percent while transport services will be taxed at 5 percent.