GST Rates: Car and bike prices to go up? Find out

Key highlights:

• GST rate of 28% decided on automobiles
• Small, luxury cars to attract additional cess
• Bikes over 350cc to have additional cess

The GST Council, in its 14th meeting, has finalised the GST across categories and there is some good and bad news for people lookinng to buy a car or a two-wheeler like bikes.

The base GST rates for the automobile segment have been set at 28%, which is broadly in line with overall indirect tax rates at present.

In addition to the base rate, the Government has also proposed to levy a cess of 1% and 3% on small cars with petrol and diesel engines, respectively. 

“The rates are as per the expectations of the industry and almost all segments of the industry have benefitted by way of a reduced overall tax burden in varying degree. This will pave the way for stimulating demand and strengthening the automotive market in the country, paving the way for meeting the vision laid down in the Automotive Mission Plan 2016-26,” said Vinod Dasari, President, Society of Indian Automobile Manufacturers (SIAM). 

However, the analysts expect that there will not be a price rise for small cars under the new GST regime. 

"Considering GST will subsume infrastructure-cess currently levied on domestic passenger vehicle industry, proposed tax rate for small car is likely to be price neutral," ICRA said. 

"Bigger sedans (engine size > 1,500cc and length >4,000 cm) and SUVs (engine size > 1,500cc and ground clearance > 170mm) may see lower taxation and eventually reduction in vehicle prices, despite 15% cess above the base GST rate of 28%," ICRA said.

Some analysts, however, feel that price of small cars will increase rates and prices of luxury cars will fall under the new GST rates. 

Vaibhav Agrawal, Head of Research and ARQ, Angel Broking said, "While GST council has announced 28% GST on passenger vehicles, there is yet no clarity if there will be different tax slabs for different sized cars. Assuming 28% tax rate, small cars will become expensive by about 2-3% while luxury cars will become cheaper by the same extent which could be counter intuitive."

Subrata Ray, Senior Group Vice President – ICRA Limited, said, "the prices of relatively price sensitive small cars may increase marginally post GST, while OEMs would pass on the benefit of lower taxes on Bigger Vehicles and SUVs to customers."

He further mentioned that GST rates are likely to be almost neutral for the Commercial Vehicle and Two Wheeler and would marginally increase for Three Wheelers as it didn’t attract additional NCCD earlier.

ALSO READ: FMCG smiles: Colgate biggest beneficiary of GST; Patanjali, Dabur may cut rates, others neutral

Currently, small cars have to pay an excise duty of 12.5% and Value Added Tax (VAT) of another 12.5-14.5%, according to an Economic Times report. 

This takes the overall tax rate to around 25-27%. With GST and the additional cess, small cars will have to pay levies of 29-31%. This will ultimately raise its overall price.

So does this mean bad news for the small car segment?

ALSO READ: GST rates finalised: A complete guide on products getting cheaper or expensive from July 1

"If we assume that the current tax slabs will not undergo any revision, we don't see any material difference on companies as these prices will be passed on to the consumers and demand will not be hit severely by 2-3% price increase," Agrawal of Angel Broking said.