Small Cars to Become Slightly Pricier Due to GST


Goods and Services Tax (GST) will roll out from 1st July unifying around 10 central and state taxes into one; small cars to see a slightly increased tax rate of 28% under new system

Small and mid-sized cars in India could become little pricier after the implementation of Goods and Services Tax (GST) in the country on 1st July, 2017. The new tax system will combine around 10 central and state taxes into one. Under the new tax system, goods and services need to be positioned into one of the four rate categories that are 5%,12%,18% and 28%.

Currently small cars are taxed at a rate of 12.5% as per central excise duty, while 14.5% – 15% VAT is levied by the state governments leading the total tax value to around 27% – 27.5%. This way the small and mid-sized cars see the closest tax rate slab of 28% under the new tax system and thus these categories are expected to see a small hike in price which could be between 0.5% – 1%.

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In the mid-size segment, car with engine displacement of up to 1,500 cc attract a 24% tax by the central government, while state governments apply 14.5% VAT on them. The total tax amount goes to 38.5%. This category of vehicles will also fall under 28% slab and there will be a state compensation cess taking the total amount closer to the current level.

The SUVs and bigger cars with engine displacement of more than 1,500 cc currently attract a tax rate of 27% – 30% by central government, while state governments slap 14.5% VAT on them. So, the total amount goes between 41.5% and 44.5%. Under the GST, these vehicles would be put in the 28% slab along with maximum of 15% cess, leading the total tax incidence to 43%.


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It appears that while the small and mid-sized cars will be little pricier, a few of the SUVs and bigger cars could come marginally cheaper than their current price. But, it will depend on the manufacturers whether they will pass the benefit to the customers or not. GST is the biggest tax reform since independence and it applies an unified tax structure across the entire country.