Key highlights:

  • Over 2% lower than the current tax rate for small cars
  • Mid-segment cars with above 4 metres will see a large decline in prices
  • Honda City, Volkswagen Vento and Toyota Corolla will see a large decline in car prices

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The goods and service tax (GST) is only a few hours away from becoming a reality and the automobile sector is expected to see many changes. For the automobile industry, the government has kept a minimum GST rate of 28% in addition to the cess which is added on various vehicle segments.

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On a whole the automobile sector will see a mostly neutral impact due to the GST rollout. Prices of SUVs and large cars are expected to decline. Even for two-wheelers and medium and heavy commercial vehicles (MHCVs) such as trucks and buses, GST will have a marginally positive impact.

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Small cars will have largely a similar GST rate as the tax that had been earlier. A GST rate of 28% is applied on small cars with lesser than 4 metre length and engine below 1500cc.

GST Impact on Small Cars
Under 4-mtr (Petrol)

Car                     Current Tax              Post GST     Change

Nano                    31.50%                   29%          2.50%
Kwid
Baleno
i20

In addition small cars with petrol engine will have a cess of 1%, while those with diesel will be levied with a cess of 3%. This takes it to 29% GST rate for small petrol cars and 31% GST rate for small diesel cars.

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This is over 2% lower than the current tax rate for small cars. The current rate for small petrol cars is 31.50% and for small diesel cars is 33.25%.

So small cars with petrol engines such as Tata Nano, Renault Kwid, Maruti Suzuki Baleno and Hyundai i10 will see a 2.50% decline in the tax due to GST, as it will reduced from 31.50% current tax rate to 29% under GST.

GST Impact On Cars
Under 4-mtr (Diesel)

Car                      Current Tax              Post GST      Change

Swift                    33.25%                      31%                2.25%
Dzire
Ameo
Baleno

While small cars with diesel engines such as Maruti Suzuki Swift, Maruti Suzuki Dzire, Volkswagen Ameo and Maruti Suzuki Baleno will see a 2.25% decline in taxes as it will taxed at 31% under GST instead of the current 33.25%.

Mid-segment cars with above 4 metres will see a large decline in prices as the GST rate is much lower than the current tax rate. The GST rate for the mide segment cars is 43% and that is 8.60% lower than the current rate which is at 51.60%.

GST Impact On Cars Under 4 mtr (Higher engine capacity)

Car                           Current Tax        Post GST        Change
Ford EcoSport          44.70%                   43%              1.70%

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However, hybrid cars will see a negative impact due to GST as there is a higher tax than the current rate levied. The government has put a 43% GST rate for hybrid cars than the current tax rate of 30.30%.

GST Impact On Cars - Hybrid Cars

Car                 Current Tax        Post GST           Change
Camry Hybrid    30.30%                43%                13.30%
Prius

Hybrid cars such as the Maruti Suzuki Ciaz, Ertiga, Mahindra Scorpio, Toyota Camry and Toyota Prius will see a higher 13.30% tax rate levied under GST. This will effectively take the prices higher.

In terms of two-wheelers, the introduction of GST will not see much difference. For two-wheelers below 350cc the GST rate will bring the tax 2% lower as it will be at 28% instead of 30% currently charged.

This will see the prices of scooter Honda Activa 4G and bikes Hero Splendor, Bajaj Pulsar 150, Royal Enfield Classic 350, among others decline after GST implementation.

However, for two-wheelers abover 350cc it will increase to 31% (28% + 31% Cess) under GST, from the current tax rate of 30%. So prices of KTM 390 Duke, Harley-Davidson Street Rod, Ducati Scrambler and Triumph Street Twin would increase marginally due to the 1% additional tax.

Trucks and buses will see a 2% lower tax as under GST this would be 28% from the 30% charged earlier. We can expect this to have a positive impact on the MHCV segment.

Finally, tractors could be impacted as there would be a 12% GST rate imposed on it from no tax charged earlier. However, this impact be neutral to positive as the input tax credit of 18-28% would be set off against the 12% GST on tractors. This means that it will positively impact the tractor company margins, but would mean that farmers would have to pay much higher.