GST On Cars To Be Fixed At 28% But Luxury Cars To Attract Additional Cess

The FM has neither quantified nor defined this cess as of now - but has indicated that it will take all current cesses and special taxes into account. And yet he promises that it would like still keep the tax on luxury cars under 40%. Further he has added that there may be a form of incentive worked out for the smaller, fuel efficient cars - to give them a further benefit to being included in the 28 per cent GST slab.

Abdul Majeed, Partner in the Automotive Practice at Price Waterhouse says, "Since most cities are choked and there is a strong demand for decongestion. And also from the growing environmental requirement to reduce emissions, a further incentive to promote the sale of small cars is likely."

Sources at one of India's largest carmakers say they believe this indicates car price will effectively stay the same as they are today. They also point out that the further incentives may well be reserved only for environmentally friendly small cars like hybrids or electrics. Majeed adds, "A further incentive is very likely for hybrid or electric cars. It is something the government will have to consider, and many other countries have followed this model too."

But that clarity will only come in a few weeks, as we get closer to the April 1 deadline. The Society of India Automobile Manufacturers or SIAM has already suggested a 2 slab approach to this issue - since many members have been worried about the taxation gap between smaller and larger cars shrinking. But it seems the government has consensus on a uniform rate but with the caveats I have spoken of above. It is wait and watch now - as the auto industry will also seek clarity on how the government chooses to define small and big cars. Will it stay with the current definition that creates a 4 metre divide or will it opt for price tags/engine displacements as the barometer is something the government needs to clear before the new regime can set in.