How Implementation of GST Will Impact the Prices of Cars in India


Finally, after long wait the Goods and Service Tax (GST) will be implemented in India from July 1, 2017. Although, the success of tax and its impacts on Indian economy are hidden in future, but it has created lots of curiosity among the citizens of country and has become the topic of hot debate among everyone. This is mainly because it is said that with implementation of this law, a common tax policy will be applied on all types of goods and services across the country and therefore, it is believed that the price of costlier items will be higher than existing tax policy.

Going through the concern of people, we are trying to find the impact of GST on the prices of cars that are being sold under different segments. But, before that it would be better to know what exactly GST is?

What is GST?

GST also known as Goods and Service Tax is overall amount of indirect tax that are levied on manufacturers, for sale of goods and services offered by them and charged equally from the customers consuming them. This tax will be charged equally from all the citizens across the country and will replace the indirect taxes that are imposed on customers by Central and State governments individually.

Impact of GST on Car Prices:

It is speculated that implementation of GST will result in levying of indirect CESS on the shoulders of car lovers. Generally, there are four segments of cars existing in Indian car market.

  1. Small Cars: Also referred as hatchback the length of these cars is mainly about four meter and are empowered with both petrol and diesel engines but not more than 1.2 litre and 1.5 litre engine configurations respectively.
  2. Mid-size Sedan: These are the cars which have length above four meter and offered in both petrol and diesel variants but do not have engine more than 1.5 litre displacement capacity in any of the variants. They are also known as compact sedans.
  3. Luxury Cars: Like mid-sized cars these cars also have length above four meter and empowered with engine with more than 1.5 litre displacement capacity in both petrol and diesel variants.
  4. Sports Utility Vehicles: These are the vehicles which have ground clearance of 170mm and length above four metre, they are also offered in both petrol and diesel variants with engine configuration more than 1.5 litre.

Let us now make difference in the car prices under different segments on basis of existing tax levies and on the basis of GST.

  1. Small Cars: At present the tax on small cars enriched with petrol engine varies from 26% to 34% whereas on diesel variant it varies between 27.5% and 35.5%. After GST the total tax on petrol variant will be 29% (28% base tax+1% CESS), while on diesel it will be 31% (28% base tax+3% CESS).
  2. Mid-sizd Sedan: The existing tax on both petrol and diesel variants varies from 40.5% to 51.5%, after application of GST it will be 43% (comprising of 28% base and 15% CESS).
  3. Luxury Cars: The GST tax on this segment will be 43% (28% base and 15% CESS) whereas today the tax varies from 44.5% t o 51.5%.
  4. SUVs: The ongoing tax falls between 47.5% and 54.5% but after GST it will be also 43% (28% base and 15% CESS).

From the above mentioned description it can be noticed that the prices of small cars will certainly go high after implementation of GST. Although, there are certain states that charge Octroi the cost of car might be different, let us for instance say Maharashtra.

This could be better understood from the following illustration:

The ex-showroom price of Renault Kwid with 0.8 litre engine is Rs 3,32,312. But as Octroi is not charged in Delhi, the ex-showroom price of Kwid in Delhi comprises of VAT+ Infra CESS that makes the total tax up-to 26%.

That means ex-factory price of Kwid in Delhi is Rs. 263739. After implementation of GST the tax as referred in point 1 will be 29% thus making the ex-showroom price of Kwid 0.8 petrol in Delhi to Rs. 340223, which as compared to existing ex-showroom price of Rs. 332312 is Rs. 7911 higher.


Source by Kamal Swami

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