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Introduction
GST is Goods and Service tax, the centralized indirect taxation structure that was introduced by the Government of India in 2017. It’s applicable on the majority of goods and services in our country. This tax structure was introduced as an alternative to the multiple taxes that were applicable on the goods and services across various states and union territories in India.
GST stands for Goods and Service Tax and is applicable throughout the country. It has eliminated the multiple points of taxation and has streamlined the taxation compliance and procedures across the country. Automobile sector is one of the sectors where GST is applicable on every aspect be it on sale of new or used cars or two wheelers, auto parts, etc. The details of GST on cars and the rates applicable are discussed below.
GST Rate on Cars
The introduction of GST has resulted in a change in the rate of taxation on every segment of the automobile industry. Earlier the taxes that impacted the automobile industry were excise taxes and VAT. The taxes were levied at the point of origin. Under the new tax regime, tax is levied at the consumption state which is intended to increase the consumption in the automobile sector. The current rates of taxation on the automobile sector are quite lower than the earlier tax regime of indirect taxation.
The applicable rates under the GST structure are mentioned hereunder.
Segment | Examples | Engine capacity | Tax rate pre-GST | Tax rate post-GST | Difference between the Tax rates |
Small cars | Maruti Suzuki Swift, Tata Tiago, Volkswagen Polo, Hyundai i10 | Less than 1,200cc | 28% | 18% | 10% |
Mid-size cars | Maruti Baleno, Honda Amaze, Tata Nexon | From 1,200cc to 1,500cc | 39% | 18% | 21% |
Luxury cars | Bugatti Chiron, Lamborghini Aventador, Toyota Land Cruiser | Above 1,500cc | 42% | 28% | 14% |
SUVs | Mahindra TUV, Jeep Compass, Renault Duster | Above 1,500cc | 45% | 28% | 17% |
Electric vehicles | Mahindra Verito | NA | 20.5% | 12% | 8.5% |
GST Rate Based on Fuel Type
The rate of levying the GST on various cars differs based on the fuel type. Given below is the difference in the tax rates of various cars as well as the different tax rates in GST era and before.
Car type | Engine type | Fuel tank capacity | Example | Tax rate pre-GST (a) | Tax rate post-GST (b) | Difference (c) = (a-b) |
Sub 4-metre cars | Petrol | Less than 1.2l | Maruti Suzuki Dzire, Toyota Etios Liva | 31.5% | 29% | 2.5% |
Diesel | More than 1.5l | Hyundai i20, Maruti Suzuki Vitara Brezza, Mahindra TUV 300 | 33.25% | 31% | 2.25% | |
Petrol, diesel | Petrol: More than 1.2l; Diesel: Less than 1.5l | 44.7% | 43% | 1.7% | ||
Larger than 4-metres SUVs | Petrol, diesel | Any capacity | Mercedes-Benz GLC, Mahindra Scorpio, Ford Endeavour | 55% | 43% | 12% |
Larger than 4-metres non-SUVs | Petrol, diesel | Petrol: More than 1.2l; Diesel: More than 1.5l | Honda City, Maruti Suzuki Ciaz | 51.6% | 43% | 8.6% |
Electric cars | Electric | NA | Mahindra eVerito, Mahindra e20 | 20.5% | 12% | 8.5% |
Compensation Cess in GST Act
Compensation Cess is the type of cess that is levied under the GST Act in addition to the applicable rates.
The previous tax structure of the VAT regime required the tax to be collected by the producer states at the time of interstate transfer of goods and services. The GST Act introduced the compensation cess as an attempt to compensate the producer or the manufacturing states in case of loss of revenue to such state upon the application of new GST tax laws. As per the provisions of the GST Act, the application of Compensation cess is effected on the following important goods.
- Aerated water
- Motor vehicles
- Tobacco and tobacco products including cigarettes (No GST applied on such products as VAT is still applicable)
- Various types of solid fuel such as coal, briquettes and other coal derivatives
Furthermore, the GST Act states that compensation cess will not be applicable in case of goods that are exported from our country to any place abroad. If, however, the compensation cess is provided to an exporter, such exporter will have to duly refund the cess paid. The Act also provides that the compensation cess will not be applicable in case of dealers or manufacturers registered under the composition scheme. The levy of compensation cess as per the current scenario of the Act will be in effect till 1st July 2022 i.e. for 5 years subsequent to GST implementation on 1st July 2017.
Cess Applicable on Cars
Apart from the above, an additional cess is also applicable on the cars and is levied based on the type of cars or the segment of the cars. The details of the same are tabled below.
Segment | Engine capacity | Applicable GST rate | Applicable Cess |
Small cars | Less than 1,200cc | 18% | 1% |
Mid-size cars | From 1,200cc to 1,500cc | 18% | 3% |
Large cars | Above 1,500cc | 28% | 15% |
Electric Cars | 12% | NIL | |
Ambulance Vehicles | 28% | NIL | |
Three Wheelers | 28% | NIL | |
Fuel Cell Vehicles | 12% | NIL |
The cess is applicable on sale of any cars within the segments mentioned above. The rate of taxation under GST including the cess is lower than that as per the earlier tax regime of indirect taxes.
Impact of GST on Vehicle Industry
The introduction of GST has had a profound effect on the automobile sector. GST is levied not only on the sale or transfer of vehicles but also on that of the parts. The idea of this kind of indirect taxation was to streamline the indirect taxes across the country and to boost the economy by giving the ultimate benefit to the end consumer due to reduced taxes. The impact of GST on the Automobile Sector is discussed below.
Consumers
The previous tax regime of indirect taxation required the consumers to bear a higher tax burden on purchase of any four wheelers or two wheelers. The old tax structure levied tax ranging from 26.5% to 44% on the sale or transfer of vehicles. The current tax structure levies a tax of 18% to 28% on the sale and transfer of vehicles. This gives increased purchasing power in the hands of the consumer and passes the benefit of the GST tax structure to the consumers directly.
Manufacturer
The new indirect tax structure under GST has greatly reduced the overall taxes on the manufacture and sale of automobiles. This has resulted in increased savings on part of the manufacturers. The cost of spares and automobile parts has also reduced resulting in overall reduction in cost of vehicles.
Dealer and Importer
GST tax structure has greatly impacted the dealers and importers of the automobile sector and has benefitted them hugely. The new tax structure enables the dealer and importers to take credit of the input tax paid. This benefit was not allowed to such dealers and importers in the previous indirect tax structure.
Exemptions to Implication of GST on cars
GST tax structure has made a provision for relief to the buyers of the used cars. The dealers of used cars can pay tax on the differential value derived between the selling price and the buying price of the used cars. This relief is provided with the intention to remove the cascading effect that is a cause of concern for any person dealing in used cars.
Furthermore, the dealers are allowed to forego the payment of the tax on the above mentioned differential value if such differential value is negative. The government also provides the relief of exemption from payment of GST in case of purchase of the second hand cars from an unregistered dealer. The Act does provide for levy of GST on the car services or warranty extended by the car dealers.
FAQs – GST on Cars
1. Can the GST levied on cars be refunded?
No, the GST levied on cars cannot be refunded as per the provisions of section 17-5 of the CGST Act. Input Tax Credit cannot be availed for motor vehicles.
2. What are the exceptions when the input tax credit can be availed or GST levied can be refunded?
The exceptions to the rule that the GST cannot be refunded or input tax credit cannot be availed are in case of the following vehicles,
- Where the vehicle is used for transport or for providing driving lessons (i.e. for educational purposes)
- Where the vehicle is used in further chain of supply
- Where the vehicle is used in transportation of goods
3. What is the lowest rate of GST applicable on the cars?
The GST tax structure levies the indirect tax in the form of GST on all segments of cars and the rate of GST to be applied varies on the type of car or the segment of the car. The lowest rate of GST applicable on cars is 12% which is charged on the sale or transfer of electric cars in India.
4. What are the various categories depending on which GST is levied on cars in India?
The levy of GST in India is dependent on many factors. These factors are mentioned below.
- Fuel Type
- Segment of Car
- Usage
5. What is the highest rate of GST applicable under the GST laws on cars?
The highest rate of GST applicable on cars as per the GST laws is 28% and is applicable on the SUV or luxury segment of cars that have an engine capacity of more than 1500 cc.