So after a long hustle bustle amidst the ruling and opposition parties, the GST bill is finally making its way to our taxation system with effect from July 1, 2017 (expected). This Goods & Service Tax will replace many of the state and central taxes levied on a good or service, including cars too. From the top view, it might seems to be a relief from the bunch of taxes one has to pay while purchasing a car in the form of VAT, Excise duty et al but will it be a relief or charge more in the form of a single tax is the thing to focus on. Let's find out what impact the GST bill will have on the prices of the cars in India.
According to the categories defined by the government for the various tax brackets, 'cars' belonging to the luxury group will invite a hefty tax of 28%. Apart from the flat GST charge, depending upon the classification of the vehicle 1%, 3% or 15% of extra cess will also be charged. However, there is no official word on the imposition of extra cess but experts are expecting it to be levied on the cars. Though the government hasn't issued a list for the classification of cars, if continued with the present classification list, the cars will be segregated in 4 broad categories:
Small Cars: Cars that belong to the sub-4metre length category and are powered by either a petrol mill of not more than 1.2-litre or 1.5-litre of capacity in case of a diesel motor.
Mid-sized Cars: Cars that cross the sub-4metre boundary and have the engine capacity of not more than 1.5-litre (both petrol and diesel).
Luxury Cars: Cars that fall in over 4-metre length category and have engine capacity of more than 1.5-litre.
SUVs: Cars having length of more than 4-metre and come with a ground clearance count of 170mm and have engine capacity of more than 1.5-litre.
To get a better understanding of the total tax that you have to pay while purchasing a car, we have prepared two tables illustrating the tax you have to pay before and after the imposition of GST, respectively.
| Car Categories | Type of Engine | Excise Duty | VAT | Luxury Tax | Infra Tax | Tax in Select States | Total Tax (inclusive in ex-showroom price) | |
| 1% on cars costing more than Rs. 10 lakh | Octroi | Green tax | ||||||
| Small Cars | Petrol | 12.5% | 5-14.5% | 1% | ~4% | NA | ~26-34% | |
| Diesel | 12.5% | 5-14.5% | 2.5% | ~4% | 1% on vehicles with engine capacity of more than 2000cc | ~27.5-35.5% | ||
| Mid-sized Cars | Both | 24% | 5-14.5% | 4% | ~4% | ~40.5-48.5% | ||
| Luxury Cars | Both | 27% | 5-14.5% | 4% | ~4% | ~44.5-51.5% | ||
| SUVs | Both | 30% | 5-14.5% | 4% | ~4% | ~47.5-54.5% | ||
Now, let's have a look at the increase or decrease in the percentage of proposed tax on the prices of cars:
| Car Categories | Type of Engine | Existing Tax Percentage | GST | ||
| Proposed Percentage | Proposed Cess | Effective Tax | |||
| Small Cars | Petrol | ~26-34% | 28% | 1% | 29% |
| Diesel | ~27.5-35.5% | 28% | 3% | 31% | |
| Mid-sized Cars | Both | ~40.5-48.5% | 28% | 15% | 43% |
| Luxury Cars | Both | ~44.5-51.5% | 28% | 15% | 43% |
| SUVs | Both | ~47.5-54.5% | 28% | 15% | 43% |
The tables above give us a rough idea of the increase or decrease in the prices of the cars falling under various categories. However, in states where octroi and green cess are charged, the prices could go higher than the estimated ones. Also the percentage of the VAT in various states varies. Above all, the insurance and registration charges too need to be added in the final on-road price of the car. To understand this better, let's take up few examples:
Maruti Suzuki Dzire Vdi AGS price in Delhi
Ex-showroom price – Rs. 7,76,000 (with ~27.5% tax)
This price is inclusive of VAT, excise and infra cess, hence the ex-factory price will be somewhere around Rs. 6,08,627. (There is no octroi in Delhi)
But according to the new rates proposed, this vehicle will invite 31% GST, increasing the Maruti Suzuki Dzire's ex-showroom price to Rs. 7,97,301.
Result: An increase of Rs. 21,301 in the price.
BMW 320d Luxury Line price in Delhi
Ex-showroom price – Rs. 42,70,000 (with ~44.50% tax)
This price is inclusive of excise, VAT, excise and infra cess, hence the ex-factory price will be somewhere around Rs. 29,55,017. (There is no octroi in Delhi)
But according to the new rates proposed, this vehicle will invite 43% GST, decreasing the BMW 320d Luxury Line's ex-showroom price to Rs. 42,25,674.
Result: A decrease of Rs. 44,326 in the price.
Though the prices may vary state to state, it is clear that the small cars (both diesel and petrol) will end up costing more with the proposition of GST. However, this scene may be different in states that charge octroi, such as Maharashtra.
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