Automobile industry in India is a vast business producing a large number of cars and bikes annually, fueled mostly by the huge population of the country. GST subsumed most of the indirect taxes. This article attempts to analyse the GST applicability to the automobile industry.
Pre-GST Tax Laws on Automobiles
Table showing the different types and rate of taxes levied on the passenger vehicles/SUV.
| Segment | Excise | *Nccd +auto cess | VAT | *Road tax | *Motor vehicle tax | Total | CGST | SGST | TOTAL | Difference |
| Small Cars <1200cc | 12.50% | 1.1% | 14% | State based | State based | 28%(approx) | 9% | 9% | 18% | 10% |
| Mid-SizeCars from 1200cc to 1500cc | 24% | 1.1% | 14% | State based | State based | 39% | 9% | 9% | 18% | 21% |
| Luxury Cars>1500cc | 27% | 1.1% | 14% | State based | State based | 42% | 14% | 14% | 28% | 14% |
| SUV’s >1500cc, >170mm ground clearance | 30% | 1.1% | 14% | State based | State based | 45% | 14% | 14% | 28% | 17% |
Previously, sales of used cars attracted VAT, and in some states, a composite rate and Excise/VAT were not applicable on advance received for supply of goods. Many states provided the Original Equipment Manufacturers (OEMs)/component makers with different investment-linked incentive schemes.
The two main components of this scheme were subsidies and interest-free loans allied with VAT/CST payable on sale. Sale of goods/service without any form of consideration was exempted from being taxed under VAT and Service tax.
Importers and dealers were ineligible for the CVD and excise duty paid by OEMs (Original Equipment Manufacturer). When goods were transferred from the factory, excise duty had to be paid but no VAT/CST was applicable under previous tax laws.
These vehicles were exempted from the NCCD/auto cess: electrically operated vehicles, three-wheeled vehicles, hydrogen vehicles based on fuel cell technology, vehicles used solely as taxis, the ones used by physically handicapped persons, hospital ambulances.
Impact of GST on the Automobile Industry
The two taxes charged to the end consumer on cars and bikes previously were excise and VAT, with an average combined rate of 26.50% to 44% which is higher than the GST rates of 18% and 28%. Therefore, there has been less burden of tax on the end consumer under GST.
Importers/dealers can cheer as they would be able to claim the GST paid on goods imported/sold whereas previously, they were ineligible to claim the excise duty and VAT paid.
Excise paid on stock transfer would be covered by IGST under the GST law. Advance received for supply of goods will also be taxed under GST. GST would help the manufacturers in procuring auto parts at a cheaper cost due to an improved supply chain mechanism under GST.
GST on cars and bikes are kept under the 28% bracket and a list of cess to be levied on a different kind of automobile has also been declared by the Indian government. Cess has been levied on different kinds of automobiles ranging from 1 to 15%. We have created an infographic for an understanding of different cess rates applied on different kinds of automobiles.
GST Rates on Automobiles
| Description of the motor vehicle | GST Rate | Cess |
| Motor vehicles for the transport of not more than 13 persons, including the driver | 15% | |
| Motor vehicles, excluding ambulances, three-wheelers and vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000 mm, with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion or with with both compression-ignition internal combustion piston engine [diesel-or semi diesel] and electric motor as motors for propulsion | 15% | |
| Petrol, liquefied petroleum gas (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000mm. | 18% | 1% |
| Diesel driven motor vehicles of engine capacity not exceeding 1500cc and of length not exceeding 4000mm. | 18% | 3% |
| Motor vehicles of engine capacity not exceeding 1500 cc | 17% | |
| Motor vehicles of engine capacity exceeding 1500 cc other than motor vehicles specified against entry at S. No 52B | 20% | |
| Motor vehicles of engine capacity over 1500cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. | 22% | |
| All old and used motor vehicles , electric vehicles, vehicles cleared as ambulances | Nil | |
| Refrigerated motor vehicles | 18% | |
| Special purpose motor vehicles | 18% | |
| Motor vehicles to transport ten or more persons, including the driver, apart from buses used for public transport, which exclusively run on Biofuels | 28% | |
| Motor cars and other motor vehicles mainly designed for the passenger transport, apart from those mentioned above, including station wagons and racing cars, leaving out cars for physically handicapped persons | 28% | |
| Goods transport vehicle (other than refrigerated) | 28% |
GST will be beneficial for the people in the market for small family cars like Alto, Santro, Nano, Datsun Go as a minimum cess of 1% has been charged over and above the GST rate of 18%.
Bikes such as scooters and having engine capacity between 150cc to 180cc will attract GST at 18% plus cess of 3%. Whereas, bikes which have an engine of greater than 350CC like Enfield 500CC or Harley Davidson, etc would be charged GST at the rate of 28% and an additional 17% cess would be levied.
It can be understood that yachts, aircraft, and personal jets fall under the 3% cess bracket instead of the 15% cess whereas they attract a GST of 28%.
There are a lot of free services/warranties offered by the car manufacturers due to the competitive nature of the industry. These free goods/services were not taxed under previous tax laws. Under GST, the free services/ warranties would also be subjected to taxation.
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