There is good news for people looking to buy two-wheelers or cars this festive season. The government has restructured the Goods and Services Tax (GST), a move that will make vehicles relatively affordable.
As part of GST rationalisation, the GST Council has removed two slabs -- 12% and 28% -- and retained as many slabs -- 5% and 18%. It has also introduced a new 40% slab for sin and luxury goods, while doing away with the compensation cess. The new rates will become effective from September 22.
How is this development good for new buyers?
If we talk about internal combustion engine (ICE) vehicles, they were under the 28% slab earlier. Over and above GST, they would attract a compensation cess of 0-22%. Hence, the total tax incidence would be from 28-50%.
With the removal of the 28% slab and compensation cess, the total tax incidence on ICE vehicles will now be either 18% or 40%. For reference, ICE vehicles here include two-wheelers, cars, three-wheelers and commercial vehicles.
Moving to electric vehicles (EVs), they are still under the 5% slab, while hydrogen fuel cell vehicles (FCEVs) have been moved from the 12% slab to 5% slab. There was no compensation cess on these vehicles even before restructuring.
Let us now proceed category-wise
We will not talk about EVs (two-wheelers or cars) as nothing has changed for them. We will also skip FCEVs as these vehicles are currently limited to pilot projects or mere showcases in India.
With regard to ICE two-wheelers, motorcycles and scooters with an engine capacity of up to 350cc will now attract only 18% GST as against 28% (28% GST + 0% compensation cess) earlier. Hence, models like Hero HF Deluxe, Hero Splendor Plus, Honda Activa 110, Honda Shine 125, TVS Jupiter, TVS Raider, Bajaj Pulsar 125, Bajaj Pulsar RS200, Royal Enfield Bullet 350 and Royal Enfield Classic 350 will become cheaper now.
However, ICE two-wheelers with an engine capacity of over 350cc have been placed under the 40% slab. Earlier, the total tax on them was 31% (28% GST + 3% compensation cess). The move will result in the prices of models like the Royal Enfield Himalayan 450, Royal Enfield Guerrilla 450, Royal Enfield Interceptor 650, Royal Enfield Continental GT, Bajaj Pulsar NS400Z, Honda Rebel 500, Honda CB650R, and Harley-Davidson X440 rising.
The small cars, be it SUVs, hatchbacks or sedans, will be real gainers of the GST restructuring. Small cars refer to petrol/CNG/LPG models with an engine capacity of up to 1,200cc or diesel models with an engine capacity of up to 1,500cc, having a length of not more than 4 metres.
For the petrol/CNG/LPG models, the total tax was 29% (28% GST + 1% compensation cess) earlier, while it was 31% (28% GST + 3% compensation cess) for diesel models. The GST on such models will be flat 18% now, resulting in a significant reduction in their prices.
Do not think that small cars mean only the Maruti Suzuki Alto K10, Maruti Suzuki S-Presso or Renault Kwid here. The tax benefit will be enjoyed by some of the largest-selling models like Maruti Suzuki WagonR, Maruti Suzuki Swift, Maruti Suzuki Baleno, Maruti Suzuki Dzire, Maruti Suzuki Fronx, Hyundai Venue, Hyundai Exter, Hyundai i20, Hyundai Grand i10 Nios, Tata Punch, Tata Tiago, Tata Tigor, Mahindra XUV 3XO, Kia Sonet, Toyota Glanza, Toyota Urban Cruiser Taisor, Nissan Magnite and Renault Kiger.
The cars with a petrol/diesel engine capacity of up to 1,500cc attracted 45% total tax (28% GST + 17% compensation cess) earlier. They will come under the 40% slab, resulting in lower taxation. The beneficiaries would be Hyundai Verna, Honda City, Skoda Slavia and Volkswagen Virtus, among others.
For cars with a petrol/diesel engine capacity of over 1,500cc, the total tax was 48% (28% GST + 20% compensation cess) earlier. Now, it will come down to 40%. We expect models like the Mercedes-Benz C-Class, BMW 3 Series, and Audi A4 to benefit from this.
On SUVs (over 4 metres in length, more than 1,500cc petrol/diesel engine and ground clearance in excess of 170mm), the total tax will come down from 50% (28% GST + 22% compensation cess) to 40%. Several models, including the Hyundai Tucson, Mahindra Scorpio-N, Mahindra XUV700, Tata Harrier, Tata Safari, MG Hector, Toyota Fortuner, Mercedes-Benz GLE, Mercedes-Benz GLS, BMW X5, BMW X7, Audi Q5, Audi Q7, Land Rover Defender, and Range Rover, will benefit.
There were a couple of tax structures for hybrid vehicles earlier. Those with a petrol engine of up to 1,200cc or a diesel engine of up to 1,500cc, and not more than 4 metres in length, were under the 28% slab with no compensation cess. The GST will now be only 18% on them. However, no mass-market hybrid model satisfies these criteria in our market at present.
The hybrid cars above 4 metres in length, and with a petrol engine bigger than 1,200cc or a diesel engine bigger than 1,500cc, attracted 43% total tax earlier (28% GST + 15% compensation cess). These models will now be in the new 40% bracket. The Maruti Suzuki Grand Vitara and the Toyota Urban Cruiser Hyryder will enjoy the lower taxation here.
On ICE three-wheelers and ICE commercial goods vehicles, the total tax was 28% (28% GST + 0% compensation cess). It will now come down to 18%, making such vehicles relatively affordable.
"We applaud the government for this landmark GST rationalisation, which will have a far-reaching positive impact across the automotive and farming sectors. The move makes tractors and farm machinery more affordable for farmers, reduces costs for commercial vehicles and improves accessibility for personal mobility through rationalisation of rates across all SUVs. Together, these measures are expected to stimulate demand, and drive inclusive growth across the entire ecosystem," said Rajesh Jejurikar, ED and CEO, Auto and Farm Sectors, Mahindra & Mahindra.
"We also appreciate the continuation of the 5% GST rate on EVs, which is a critical enabler of India's clean mobility vision. This measure will further accelerate the adoption of electric vehicles and reinforce India's leadership in sustainable, green transportation," he added.
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