The Goods and Services Tax (GST) Council on Wednesday announced reducing GST on small cars to 18 per cent from 28 per cent. For cars above 1200 cc engines and above 4 metres in length, the GST will be 40 per cent.
PUNE: Deepavali seems to have arrived early this year with the Central government rolling out historical GST tax reforms that will literally make every four-wheeler, two-wheeler and three-wheeler cheaper and affordable post-Sept.22, the first day of Navratri and the start of the festival season.
The Goods and Services Tax (GTS) Council on Wednesday announced reducing GST on small cars to 18 per cent from 28 per cent. For cars above 1200 cc engines and above 4 metres in length, the GST will be 40 per cent.
As a result, Maruti Suzuki’s popular cars like Alto may become cheaper by Rs 40,000-50,000 and Wagon R by Rs 60,000-67,000, according to RC Bhargava, chairman at Maruti Suzuki, India’s biggest car maker.
He also said the GST rate cut will help create demand for cars with over 1200 cc engines and length of more than 4 metres as the so-called sin rate has been reduced to 40 per cent and a cess has been completely withdrawn. The two factors resulted in 50 per cent tax on some cars.
Bhargava said that the small car market which was degrowing will now grow this year by over 10 per cent because of the GST reduction.
Even the overall passenger car market should grow by 6-8 per cent, he said, pointing to the general feeling of euphoria with interest rates coming down, income tax benefits and now GST which will leave the consumers with more money to increase consumption.
Bhargava pointed out that even for luxury cars, the GST paid after cess varied from 43 per cent to 50 per cent but now it will be capped at 40 per cent. “For a car priced Rs 1 crore, a 5 per cent difference is a lot,” he noted.
Luxury cars were earlier subject to a compensation cess of 20–22 per cent on top of 28 per cent GST, depending on their classification. Under the new structure, these vehicles will now be taxed at a flat 40 per cent, translating into savings of 8–10 per cent.
“This is good news for the premium car industry and it will drive new sales,” said Hardeep Singh Brar, President and CEO at BMW Group India. The uniform rate of 18 per cent for auto parts will also have a good impact on supply chain and demand for high-quality original parts, he noted.
Thus, for example the BMW 5 Series will be cheaper by Rs 4 lakh to Rs 72.50 lakh from the earlier Rs 76.50 lakh. Similarly, BMW X7 SUV will be cheaper by a whopping Rs 9 lakh to Rs 1.29 lakh from the earlier Rs 1.38 lakh.
Brar said the retention of 5 per GST on all passenger BEV cars was necessary to realize the government’s ambition of EV penetration by 2030.
He said for premium motorcycles below 350cc, the reduction of GST to 18 per cent is set to spur demand. However, the increase in GST to 40 per cent for motorcycles above 350cc will have a negative impact on the mid-segment and high-end segment models which have been seeing good growth for the past few years.
In the case of petrol two-wheelers, prices of almost all categories, except above 350cc, will reduce about 7.8 per cent, Crisil Intelligence said, adding that prices of three-wheelers would also reduce to about 7.8 per cent.
