Picture this: The sleek curves of a high-end sedan, the hum of a powerful engine, and the scent of premium leather—all symbols of your automotive dreams coming to life🚙
But amidst the allure, there lies a web of taxation intricacies that shape the landscape of car ownership in our country.
The implementation of GST in India brought about a seismic shift, unifying diverse taxes into a singular framework and promising to streamline the complex tax structure.
Yet, when it comes to cars, the road is far from smooth. From the initial days of GST's implementation to the present, a myriad of challenges and controversies have revolved around the automotive sector.
What is GST on Cars?
Most of us are aware of the fact that automobiles attract 28% GST in India. However, this fact is just partly true. Rate of GST on cars is determined based on several factors including the type of fuel, car classification, and usage, and may range from 28% to 45%.
To illustrate this further, let's look at some examples.
For instance, smaller cars like the Tata Tiago or Maruti Suzuki have experienced a shift in tax rates. Under the pre-GST regime, the tax rate stood at 28%. However, under the GST regime, the tax rate on these small cars has been reduced from 28% to 18%.
On the other hand, car segments like the Renault Duster and Maruti Vitara Brezza face a higher tax rate of 45% under the pre-GST system, whereas post-GST, the tax rate has been reduced to 28%.
Pre-GST Tax Laws on Automobiles
Before the advent of GST, passenger vehicles and SUVs were subjected to various types of taxes. These included excise duty, NCCD (National Calamity Contingent Duty), auto cess, VAT (Value Added Tax), road tax, and motor vehicle tax. The rates varied based on the segment and specifications of the vehicles. For instance, under the pre-GST regime, cars with an engine capacity of less than 1200cc, attracted excise duty of 12.5%, auto cess of 1.1%, and VAT of 14%, making the total tax rate as 28%, however, post GST, only CGST of 9% and SGST of 9%, i.e., a total of 18% tax rate is applicable on them.
Complex Tax Laws and Incentive Schemes
Under the previous tax laws, used car sales attracted VAT, and some states had composite rates, while Excise/VAT was not applicable on advance payments for the supply of goods. Different investment-linked incentive schemes were provided to OEMs (Original Equipment Manufacturers) and component makers by several states, involving subsidies, interest-free loans, and VAT/CST (Central Sales Tax) benefits.
ITC implication on automobiles dealers
Importers and dealers can now claim the GST paid on imported or purchased goods, whereas they were previously ineligible to claim excise duty and VAT. Stock transfers are covered under the Integrated Goods and Services Tax (IGST) in the GST law, and advance payments for the supply of goods are also taxed under GST.
Latest updates on GST Rates and Cess on Cars
In its 50th meeting, the GST council made a significant decision regarding Utility Vehicles (UVs). All Utility Vehicles, including SUVs and MUVs, will be subject to a 22 percent compensation cess in addition to the 28 percent GST if the below mentioned conditions are met irrespective of their seating configurations :
Length: Vehicles measuring more than 4000mm in length or more.
Engine Displacement: Vehicles with an engine capacity of 1,500cc or more.
Ground Clearance: Vehicles with a ground clearance of 170mm or more.
Previously, only Sport Utility Vehicles (SUVs) that met the criteria of measuring over 4000mm in length and having an engine displacement above 1.5 litres attracted the 22 percent compensation cess. However, with the recent update, any vehicle that meets the specified criteria mentioned above will now fall under this price bracket.
Due to the fiercely competitive nature of the automotive industry, car manufacturers often provide a range of complimentary services and warranties. These free offerings were not subject to taxation under the previous tax laws. However, with the implementation of GST, these free services and warranties will also be liable for taxation.
Bottom line
As we drive through the realm of GST on cars in India, we unveil a landscape where taxation converges with automotive aspirations. The journey continues, with ever-evolving policies and a dynamic market.
Stay informed, empowered, and embrace the thrilling road ahead, where GST on cars continues to shape the future of the automotive industry in India.