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GST on cars can range between 0% to 28% depending on the car type and usage. In addition to GST, compensation cess will also be applicable on sale of new cars.
The GST on cars is applied across multiple slabs of 5 per cent, 12 per cent, 18 per cent, and 28 per cent based on their body length, fuel or engine type, and usage. The 28 per cent slab is the topmost tax rate and is considered as the GST on motor vehicles, both for personal as well as commercial purposes. Besides the GST on cars, a compensatory cess of up to 22 per cent is levied at the time of motor vehicle sales, in addition to the applicable GST slab rate, taking the effective GST on a car purchase to 50 per cent.
Before GST, excise and VAT were charged to the end consumer. The tax rate ranged from 26.50% to a whopping 45%, much higher than the GST. Take a look at the table given below:
Car Category |
Model |
GST Rate on Car |
Pre-GST Tax Rate |
|---|---|---|---|
Small cars under 1200cc |
Tata Tiago, Volkswagen Polo |
18% |
28% |
Medium cars between 1200-1500 CC |
Tata Nexon, Nissan Kicks |
18% |
39% |
Luxury cars above 1500 CC |
Bugatti Chiron, Land Rover |
28% |
42% |
SUVs above 1500 CC |
Jeep Compass, Renault Duster |
28% |
45% |
The impact of GST in the automobile industry can be seen as follows:
VAT and Excise, the two taxes that were previously levied on bikes and cars at a rate ranging from 26.50% to 44% on average, were paid by the consumer. These rates were far more elevated than the GST costs of 18% and 28%. Due to this, the GST has reduced the tax responsibility on the final customer.
Dealers and importers welcomed the introduction of GST on cars because they would now deduct the GST they paid for items that have been sold or imported. In contrast, they were formerly not able to deduct the excise tax and VAT they paid.
Under the terms of the GST statute, the IGST would cover the excise reimbursed on product transfers. Advances in the requirement of goods were furthermore subjected to GST taxation. Due to a better supply chain strategy under GST, manufacturers were able to purchase auto parts for less money.
The GST rate for cars and motorcycles remains at 28%, and the Indian administration has also declared a schedule of cess that will be imposed on numerous types of vehicles. Cess has also been assessed on many car types, and it ranges from 1- 15%. For a better understanding of the various cess rates applicable to various types of autos, we have produced an infographic.
GST and Cess Rates on Vehicles -
Vehicle's Description |
Cess Rate |
GST Rate |
|---|---|---|
CNG or LPG vehicles of less than 1200 CC |
1% |
18% |
Vehicles less than 1500 CC |
17% |
- |
Special purpose vehicles |
- |
18% |
Diesel vehicles of less than 1500 CC |
3% |
18% |
SUVs |
22% |
- |
Used and old Vehicles |
Nil |
- |
Good transport motor vehicles |
- |
28% |
Transport Vehicle with capacity of not more than 13 people |
15% |
- |
Public transport vehicles which runs on biofuels with capacity of more than 10 people |
- |
28% |
Racing cars, transport vehicles for physically disabled individuals and station wagons |
- |
28% |
Refrigerated Vehicles |
- |
18% |
Vehicles with more than 1500 CC excluding the one restricted against entry at S.No 52B |
20% |
- |
1. Value of Supply
The money the seller receives from the consumer in trade for the deal or services or goods is referred to as the value of supply under the GST. GST is based on trade value when it comes to connected parties. The price at which self-reliant parties would generally transact business is known as the transaction value.
Let's understand this with the help of an example.
Ms. X buys a Hyundai Grand i20 for ₹10.5 Lakhs from accessories and dealers. Then, cess and GST are calculated as follows:
Sale cost: ₹10,50,000 (value of supply)
GST rate at 18% (as the car comes under the small car category)
GST cess at 1%
Total value: ₹10,50,000 +₹1,79,000 = ₹12,29,000.
2. Discounts in regular commercial practice:
If a seller offers a discount at the sale rate prior to or at the moment of supply and indicates the discount on the invoice, the deal is not included in the value of the supply. GST must be paid on such discounts if they are not indicated in the invoice.
3. Post-supply reductions
Only when all of the requirements, as mentioned above, are completed the post-supply reductions are permitted as a deduction from taxable price:
Discounts offered must directly result from a contract with clients.
Such a contract should be signed either in advance or during the items' delivery.
The customer should reverse ITC.
The reduction must be connected to the related supply statement, which was first generated by the taxable individual at the time of the good supply.
4. Insurance and Registration
Registration, insurance, and other costs are recovered by a dealer acting as an agent. Examples of these costs include insurance, registration fees, credit card swipe fees, and others. GST won't be charged on sums gathered as a pure agent. However, if he obtains more money than he really spent, GST will be applied to that sum as well.
1. Sub-4 metre Length Segment
This is quite a hot-selling segment in the Indian automobile market, and includes car models such as Hyundai Grand i10, Maruti Suzuki Dzire, Hyundai i20, Vitara Brezza and so on.
Cars with petrol/CNG/LPG engines displacing less than 1.2 litres attracts a GST rate of 28 per cent and a cess of 1 per cent, taking the total GST on a car purchase to 29 per cent
Cars with petrol/CNG/LPG engines displacement greater than 1.2 litre, and 1.5 litre diesel engines are levied a GST rate of 28 per cent and a cess of 15 percent making the effective GST on motor vehicles at 43 per cent.
Sub-compact sedans and sub-compact SUVs with more than 1.2 litre petrol engine and less than 1.5 litre diesel engine also attract a final GST rate of 43 per cent.
2. Above 4-metre Length Segment
Irrespective of the displacement, SUVs with petrol or diesel engines in this segment attract a car GST rate of 43 per cent.
Non-SUVs in this segment include hatchbacks and sedans such as Maruti Ciaz, Honda City, with more than 1.2 litre petrol engines, and more than 1.5 litre diesel engine are levied a 43 per cent GST on automobiles.
With the transition of emission standards to Bharat Stage VI from April 2020, the electric vehicle GST rate has been fixed to give a boost to their sales as well as encourage customers towards purchasing electric vehicles (EVs). Currently, the electric car GST rate of 5 per cent applicable to EVs like Mahindra eVerito, in comparison to the 12 per cent that was previously charged as GST for EVs during the new tax system’s countrywide rollout.
Integrated Goods and Services Tax (IGST) is levied on imported cars and is calculated as a sum of the car’s assessable value and basic customs import duty.
For instance, if a car’s assessable value is ₹5, 00, 000, and the basic customs duty levied is ₹50, 000, the total value considered for levying IGST amounts to ₹5, 50,000. The IGST charged on the imported car @ 18 per cent stands at ₹99,000, making the overall cost of the imported car ₹6,49,999.
However, in a bid to give a push to the ‘Make in India’ mission, the Government has raised the customs duty on imported cars as shown below:
Customs duty on Semi Knocked down kits of passenger vehicles have now been raised to 30 per cent from 15 per cent
Customs duty on Full Knocked down kits of passenger vehicles have been raised to 15 per cent from 10 per cent
To reduce the cascading effect of taxation, the used car dealers are allowed to pay the car GST rate only on the difference between the selling and buying price of the car. If the difference is negative, the dealer need not pay any GST on cars
Payment of GST on vehicles is also exempted on the purchase of used cars from unregistered dealers
Cars purchased by physically disabled persons are also exempted from GST
In a nutshell, irrespective of the current slowdown being witnessed in India’s automotive industry caused by the lockdowns, the GST on automobiles or the GST on motor vehicles has, nevertheless, been a game changer for the industry as well as its consumers. The GST regime has fully done away with the economically perilous impact of cascading taxation imposed in the form of excise duty and VAT during the previous tax regime. GST’s relatively lower tax slabs now allow putting more money into a buyer’s hands.
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The implementation of GST on cars has surely reduced the overall tax implication on new cars, which has consequently lowered car prices in the country. Apart from giving the much-needed boat to the automobile industry, the other benefits of GST on cars are as follows:
Benefits for the Customer:
As a customer, one needs to pay a reduced tax amount on the car of their choice.
Benefits for the Dealer:
The importers/ dealers who earlier could not make a claim for VAT and excise paid, can claim their tax deductions with the introduction of GST.
Benefits for the Manufacturer:
With the inclusion of excise duty, the overall cost of manufacturing has also declined. The manufacturer can claim an ITC on the raw material that is used during production. Thus, the manufacturer is in a better position of gaining more benefits.
The implementation of GST on cars has surely reduced the overall tax implication on new cars, which has consequently lowered car prices in the country. Apart from giving the much-needed boat to the automobile industry, the other benefits of GST on cars are as follows:
Benefits for the Customer:
As a customer, one needs to pay a reduced tax amount on the car of their choice.
Benefits for the Dealer:
The importers/ dealers who earlier could not make a claim for VAT and excise paid, can claim their tax deductions with the introduction of GST.
Benefits for the Manufacturer:
With the inclusion of excise duty, the overall cost of manufacturing has also declined. The manufacturer can claim an ITC on the raw material that is used during production. Thus, the manufacturer is in a better position of gaining more benefits.
As per Section 17-5 of the CGST Act, car GST is not refundable.
GST is included in the ex-showroom price along with the car’s factory price. The on-road price on the other hand includes the ex-showroom price along with the registration charges, road tax and the cost of insurance.
If you are buying a used car, the GST would be applicable on the differential margin that exists between the selling price and the purchase price of the car.
To promote the usage of electric cars, the government has introduced Section 80 EEB which offers a tax exemption of ₹1.5 Lakhs on the loan taken to purchase the EV. Other than this, the government has also slashed the electric vehicle GST rate to 5% which was 12% earlier.
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