SUVs and luxury car cheaper after GST

• Published On: 22 May 2017
• 1297 Views

Electric vehicles will benefit while hybrids will not; Small cars will attract 1-3 percent additional cess.

The Government has released the rates for 98 categories of goods, including those for the automobile sector, under the GST. Most vehicles will come under a standard 28 percent tax rate. There’s also a provision to separately levy an additional variable cess on any vehicle category.

“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,” said Vinod Dasari, SIAM president.

Sub-four-metre cars will now attract a 1 percent cess for petrol models (less than 1,200cc) and 3 percent for diesel cars. This changes their effective GST rates to 29 percent and 31 percent, respectively. Customers might see a minor price rise in this segment. Rates for mid-size cars and SUVs (length more than four metres, engines smaller than 1,500cc) will remain more or less unchanged at a net rate of 43 percent. Large cars and SUVs (engines larger than 1,500cc) see a considerable reduction in indirect taxes from an earlier 50 percent to now 43 percent (GST of 28 percent plus cess of 15 percent).

The Government is looking to encourage the use of electric vehicles, and the GST for EVs has been kept in a lower tax band of 12 percent; this includes two-, three- and four-wheelers as well. Hybrid vehicles though have been kept in the highest rate bracket there is, of 28 percent with an additional 15 percent cess (total of 43 percent) - the same amount as the tax on a luxury car. This move is a setback for manufacturers like Toyota, Lexus and Hyundai, which have invested considerably towards hybrid technology.

"We were expecting some positive inputs towards hybrid vehicles but with the absence of that, and with the current taxation structure, there could be big challenges towards bringing in feasible hybrid technology. Luxury cars will definitely become cheaper by quite a bit. The impact on small cars will be negligible," Rakesh Srivastava, director (sales & marketing), Hyundai Motor India, told Autocar India.

The cost of owning a vehicle is expected to rise too - auto parts now fall under the 28 percent tax slab of GST. This, with the 3 percent increase in the tax rate for services, which now in total stands at 18 percent, means that servicing your car will cost more.

The GST is expected to replace as many as 17 indirect central and state tax levies. The government has committed towards a deadline of July 1 for its rollout.