GST on Car

The automobile industry in India is a major enterprise that produces a great number of automobiles and motorcycles each year, powered primarily by the country's large population. The GST absorbed the majority of the indirect taxes. 

What is GST on Cars?

GST on cars is applicable across different tax slab rates of 5%, 12%, 18% and 28%. Typically, GST on cars depends on several factors. Some of the prominent factors include –

  • Classification
  • Fuel type
  • Usage

GST Rates on Cars in India

Let's take a close look at the tables discussed below to find more on car GST rates levied on specific factors.

  • GST on Car Based on Category 

This table highlights the GST on vehicles as per their category. 

Category of Car

Model 

Pre-GST Tax Rate 

GST Rate on Car

Small cars with an engine capacity less than 1200cc 

Volkswagen Polo, Hyundai Grand i10, Maruti Suzuki Swift, and Tata Tiago.

28%

18%

Medium size cars with an engine capacity over 1200cc and less than 1500cc

Honda Amaze, Nissan Kicks, Maruti Baleno, and Tata Nexon.

39%

18%

Luxury car with an engine capacity above 1500cc

Lamborghini Aventador, Bugatti Chiron,  Toyota Land Cruiser, Land Rover, etc. 

42%

28%

SUVs with an engine capacity above 1500cc

Renault Duster, Mahindra TUV, Jeep Compass, Maruti Vitara Brezza, etc. 

45%

28%

Electric vehicles 

Mahindra eVerito and Mahindra e20. Electric vehicles owners receive a direct deduction of 7.5%

20.5%

12%

  • GST on Car Based on Fuel Type

Fuel and engine type of car

Fuel tank capacity 

Model

Pre-GST Tax Rate

GST rate on car

Sub 4-meter cars with an engine for

petrol 

Less than 1.2l 

Maruti Suzuki Dzire, Toyota Etios Liva, Hyundai Grand i10, Volkswagen Polo, etc. 

31.5%

29%

Sub 4-meter cars with an engine for 

diesel 

Over 1.5l

Mahindra TUV 300, Hyundai i20, Maruti Suzuki Vitara Brezza, Ford Ecosport, etc. 

33.25%

31%

Sub 4-meter cars with an engine for both

petrol and diesel 

For petrol -  more than 1.2l 

For diesel – less than 1.5l 

Subcompact SUVs and sedans

44.7%

43%

Larger than 4-metres SUVs for petrol and diesel engine 

Any capacity 

Tata Hexa, Mahindra Scorpio, Ford Endeavour, Mercedes-Benz GLC, etc. 

55%

43%

Larger than 4-metres non-SUVs for petrol and diesel engine type

For petrol – over 1.2l

For diesel  - over 1.5l

Hatchbacks and sedans

51.6%

43%

Electric cars

Nil 

Mahindra e20, Mahindra eVerito, etc. 

20.5%

12%

Additionally, a standard GST rate of car along with additional cess is levied on vehicles. Like, GST, cess is also dependent on the category and engine capacity of cars. The rate of cess levied on various types of automobiles can range between 1 and 15%.

Impact of GST on Automobile Industry

These pointers focus on the influence of GST on the automobile industry and its components.

  • Consumer

Previously customers used to pay both excise and VAT on the purchase price of bikes and cars. On average, the combined rate used to range between 26.5% and 44%.

With the introduction of the GST regime, the rates and charges levied on vehicles have reduced. It has come down to a range between 18% and 28%. This allows customers to pay a lower rate of tax on their purchase and facilitates easy savings.

  • Manufacturer

GST on a car has reduced the overall cost of manufacture by subsuming previous taxes. Thus, manufacturers tend to benefit significantly because of this tax regime. It further improves the supply chain mechanism and enables them to procure automobile parts at a cheaper cost. 

  • Dealer and Importer 

Both dealers and importers benefit under the GST regime as it enables them to claim an input tax credit, which was not possible earlier under the old system of taxation. IGST covers the excise paid on transfer of stock, whereas the advance received against the supply of goods is taxed as per GST norms.

The automobile industry has been struggling for over a year now. Factors like – economic slowdown, liquidity crisis, inflation and slumping sentiment among others have negatively affected the industry's domestic sales. 

GST Calculation on Cars

The rate of GST on a car belonging to a specific category with a particular fuel type and engine capacity is factored in to calculate the final sale price.

For example,

Hyundai i20 comes at a price range of Rs.6.49 lakh and Rs.8.3 lakh and attracts taxation as per the car GST rates.  In addition to that, the car will also attract applicable cess among other charges. 

Exemptions for GST on Car

Used car dealers pay taxes on the difference between the selling price and the buying price of a second hand car. It helps to eliminate the cascading effect of taxation. In case, the margin of the transaction is negative; dealers do not have to pay GST on car.

Additionally, the government has exempted GST on the purchase of second hand vehicles from an unregistered seller.

Notably, the car services and warranties extended by car dealers are taxed under the GST regime. This tax regime emphasises more on the consumption state, which ensures growth and viability for the automobile industry. 

Exemptions of GST Rates on Car

The GST tax system includes a provision for assistance for used automobile buyers. Dealers of used automobiles might pay tax on the difference in value between the selling and buying prices of used cars.

This remedy is intended to eliminate the cascading impact that is a source of concern for everyone who deals in used autos.

Furthermore, if the differential value is negative, the dealers are exempt from paying the tax on the differential value. The government also offers relief in the form of a GST exemption when purchasing a used car from an unregistered dealer.

The Act does provide for the imposition of GST on automobile services or warranties provided by car dealers.

Should You Invest in a Car Now?

As per experts, mid-segment cars can witness an increase in car prices; while the small diesel car segment is expected to be most affected.

Individuals can expect a sharp rise in prices of the same. Conversely, luxury cars or SUVs will extend lucrative offers and will make the prices of such brands a lot cheaper than they usually are. 

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