GST Effect On Cars: Small Cars To Be Expensive; Luxury Cars To Be Cheaper

The Goods and Services Tax will be introduced in India on the 1st of July. It is of course one of the biggest tax reforms the country has ever seen and what it does is simplify the way both consumers and the manufacturers do business while also bringing in equanimity. As we've already told you how GST is going to affect the prices of bikes in India, well, here we take a look at how the price of four-wheelers will be impacted. There'll certainly be a revision in prices, considering that under the current tax structure, a car buyer has to pay excise followed by VAT, infra cess and - in some states - even octroi or green cess. The amount of tax charged of course depends on the state you are in and that's why you see ex-showroom prices of cars varying in different states. Well, all that is going to change.

From the 1st of July, all cars will attract a basic GST of 28 per cent and according to the GST law, a cess can be levied on this peak rate. The additional cess is either 3 or 15 per cent depending on the classification of the cars which is basically categorised into small cars, large/luxury cars and SUVs.

The small car category is for cars that are under 4 metres long with a petrol engine capacity of not greater than 1.2-litre or diesel engine capacity which is not greater than 1.5-litre. These cars currently attract 26-28 per cent tax depending on the state you buy it in. As per the GST rates, the petrol cars will attract an additional cess of 1 per cent while the diesels will be charged an cess of 3 per cent over and above the standard 28 percent. This means that cars like the Maruti Suzuki Alto, Celerio, Wagon R, Ignis, Baleno, Renault Kwid and even the Hyundai Eon and i20 to name a few will see a price revision.

Small diesel cars will now be charged 31 per cent tax and this will see a hike in prices of cars like the newly launched Hyundai Xcent, Maruti Suzuki Dzire, Tata Tigor et al. The cars that are above 4 meters in length but with an engine capacity that is less than 1500cc will carry a tax of 43 per cent (up by 2 percent under the current taxation policy). Cars like the Honda City, VW Vento and even the Maruti Suzuki Ciaz will see a hike in price.

Not all cars will get expensive after the GST norms kick in though. The biggest respite comes to luxury cars with car like the Mercedes-Benz C-Class, Audi A4, BMW 3 Series among others will benefit greatly. Luxury cars attract nearly 44.5 per cent tax in the current regime, which will come down to 43.5 per cent under the new GST norms. That means, a car like the Audi A4 diesel will cost almost Rs. 40,000 cheaper than the present prices.

Sports utility vehicles (SUVs) too will be the clear winners once the new taxation norms are in place. Starting from 1st July, SUVs will attract a fixed 28 per cent in taxation and an addition 15 per cent cess. This brings the total taxes on SUVs to 43 per cent, as opposed to the 48 per cent in the current structure.

This means, popular offerings like the Toyota Fortuner could see a price drop by nearly Rs. 1 lakh in Delhi, along with models like the Ford Endeavour and the newly launched Volkswagen Tiguan. Even upcoming models like Tata's premium SUV will benefit with the more affordable price tag.

Overall, the GST norms can be seen as a positive move for the auto industry. The current complicated structure was in need a dire update and the new norms bring exactly that to the table. While small cars won't be largely affected, the bigger respite comes to luxury cars and SUVs that get more affordable in the process. However, we still await clarity on the taxation of fully imported vehicles and we will be looking forward to the updates from the government over the same.