The Goods and Services Tax (GST) was introduced in India on July 1, 2017, with the aim of simplifying the country's complex tax structure and unifying the taxation system. One of the significant sectors impacted by GST is the automobile industry. In this article, we will delve into the GST applicability and tax rates on automobiles in India.

GST Applicability on Automobiles

GST is a destination-based consumption tax, and it applies to all stages of the supply chain. The automobile sector is no exception. GST is levied on the manufacture, sale, and consumption of automobiles, and it has replaced a host of indirect taxes such as excise duty, VAT, and CST that were previously applicable.

Types of Automobiles

Under GST, automobiles are broadly categorized into the following types:

1. Two-wheelers: This category includes motorcycles and scooters.

1. Passenger Vehicles: Passenger vehicles are further divided into small cars, mid-sized cars, and luxury cars. These vehicles are designed primarily for the transportation of passengers.

1. Commercial Vehicles: This category includes buses, trucks, and other vehicles used for commercial purposes.

GST Tax Rates on Automobiles

The GST tax rates on automobiles are primarily determined by their type and size. Here are the applicable GST rates on various types of automobiles:

1. Two-wheelers: Two-wheelers are subject to a GST rate of 28%. However, electric two-wheelers enjoy a lower GST rate of 5%, incentivizing the adoption of electric vehicles (EVs).

1. Passenger Vehicles: The GST rates for passenger vehicles are as follows:

1. Small Cars (sub-4 meter length and engine capacity less than 1200cc for petrol and 1500cc for diesel): 28%

1. Mid-sized Cars: 28%

1. Luxury Cars (with a price tag above a specified threshold): 28% + Compensation Cess (varies based on the vehicle's price and engine capacity)
   

1. Commercial Vehicles: Commercial vehicles are taxed at a GST rate of 28%, with some exemptions for specific categories, such as electric buses.

1. Electric Vehicles (EVs): To promote the adoption of EVs and reduce pollution, the GST rate on electric vehicles and their components is set at 5%.

1. Hybrid Vehicles: Hybrid vehicles attract a GST rate of 28%, similar to conventional vehicles.

Additional Compensation Cess

Apart from the GST rates mentioned above, certain luxury vehicles and SUVs are subject to an additional compensation cess. This cess is imposed to compensate the states for potential revenue losses due to the implementation of GST. The rate of compensation cess varies depending on the vehicle's engine capacity and price.

Impact of GST on Automobile Industry

These pointers focus on the influence of GST on the automobile industry and its components.

Consumer

Previously customers used to pay both excise and VAT on the purchase price of bikes and cars. On average, the combined rate used to range between 26.5% and 44%.

With the introduction of the GST regime, the rates and charges levied on vehicles have reduced. It has come down to a range between 18% and 28%. This allows customers to pay a lower rate of tax on their purchase and facilitates easy savings.

Manufacturer

GST on a car has reduced the overall cost of manufacture by subsuming previous taxes. Thus, manufacturers tend to benefit significantly because of this tax regime. It further improves the supply chain mechanism and enables them to procure automobile parts at a cheaper cost. 

Dealer and Importer 

Both dealers and importers benefit under the GST regime as it enables them to claim an input tax credit, which was not possible earlier under the old system of taxation. IGST covers the excise paid on transfer of stock, whereas the advance received against the supply of goods is taxed as per GST norms.

The automobile industry has been struggling for over a year now. Factors like – economic slowdown, liquidity crisis, inflation and slumping sentiment among others have negatively affected the industry's domestic sales. 

 

GST has streamlined the taxation system for automobiles in India, making it more transparent and efficient. The tax rates on automobiles vary based on factors such as the type of vehicle, engine capacity, and whether it is electric or conventional. The government's focus on promoting electric mobility is evident through the lower GST rates for electric two-wheelers and vehicles, aiming to reduce carbon emissions and create a sustainable transportation ecosystem in the country. Understanding the GST applicability and tax rates on automobiles is crucial for both consumers and industry stakeholders as it directly impacts the pricing and affordability of vehicles in the Indian market.

 

Created & Posted by Pooja

Income Tax Expert at TAXAJ

 

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you a One Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else visit TAXAJ

 

Watch all the Informational Videos here: YouTube Channel

 

TAXAJ Corporate Services LLP

Address: 1/11, 1st Floor, Sulahkul Vihar, Old Palam Road, Dwarka, Delhi-110078

Contact: 8961228919 ; 8802812345 | E-Mail: connect@taxaj.com