From SUVs to sedans, hatchbacks and MPVs: How much GST will they attract? We explain

With the Group of Ministers (GoM) approving the Centre's Goods and Services Tax (GST) rate rationalisation proposal earlier this week, we will see some profound changes in the tax structure in the near future. For the car market, a big relief will come in the form of a lower levy on models across segments.

GST rationalisation

At present, the GST structure has four slabs -- 5%, 12%, 18% and 28%. As part of the rationalisation, the 12% and 28% slabs will be removed, and the 5% and 18% slabs will be retained. Also, a new 40% slab will be introduced for sin and luxury goods.

Following the GoM's approval, the matter will be taken up for further discussions at the 56th GST Council meeting, scheduled to be held on September 3 and 4.

GST on cars

Irrespective of the category, all cars attract a GST of 28%. Depending on the body-style, length, type of engine and engine capacity, a compensation cess, ranging from nil to 22% is also levied. Hence, the total tax can be 28%, which is the lowest, or 50%, which is the highest.

Just for reference, all electric vehicles (EVs) come under the 5% GST slab with the compensation cess being nil.

Current tax structure

For a better understanding of the current GST structure on cars, we have prepared the following table for you.

Cheaper cars?

While the small cars are expected to move from the 28% GST slab to the 18% GST slab, the larger vehicles might be put in the new 40% slab. We still do not have any clarity on whether the cess will be retained.

Irrespective of cess, the small cars will get cheaper. By small cars, we mean SUVs, sedans, hatchbacks and MPVs up to four metres in length, with an engine capacity of up to 1,200cc for petrol and up to 1,500cc for diesel. Sector experts believe that this will lead to a 6-10% price drop for such models.

However, we need to wait and see how the larger SUVs, sedans, hatchbacks and MPVs are taxed. If there is only 40% GST, they will become cheaper. But some states have raised concerns regarding the revenue being affected. We will have to wait for the GST Council's decision to know whether there will be an additional levy over the 40% GST to compensate for the revenue loss.