A Comprehensive Guide To Learning The Impact Of GST On The Automobile Sector

The automobile industry in India has gone through a big change due to a sudden rise in the demand and Indian population. The introduction of Goods and Services Tax (GST) introduced on July 1, 2017, has played a crucial role in shaping its financial landscape. Even the slightest changes made in Goods and Service Tax have affected the final price of vehicles. The automobile business is divided into two parts: commercial vehicles such as three-wheelers and minibuses, and non-commercial vehicles such as SUVs, budgeted cars, and luxury automobiles.

Each of these divisions has a separate tax rate, and I will explain all of them later in this post. As a trusted tax consultant in Gurgaon, I want to provide insights into the impact of GST on the automobile sector and how these changes directly affect your wallet. So, read this guide to obtain a deeper understanding of these changing dynamics. And don't forget to contact DSRV India, if you need help regarding filing your GST or other taxes. We offer a hassle-free taxation services to ensure compliance and tax benefits.

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The Impact Of GST On Automobile Sector In India

Learning about the impact of GST On Automobile Industry in India, is essential to understand the massive changes it has brought to automobiles in India. Being a part of a leading chartered accountant firm in India, I met many people who were curious to know whether this impact would benefit them in the long run. In the past, consumers had to pay excise and VAT at rates ranging from 26.50% to 44%. However, the introduction of GST, with tax rates of 18% and 28%, has greatly reduced this tax burden and provided a relief to automobile consumers.

Moreover, dealers and importers can now claim the GST paid on imported or sold goods. This benefit was not available under the previous excise duty and VAT system which is a great cause of celebration for them. GST's inclusion of excise paid on stock transfers and taxation on advance payments for products marks a significant shift in the taxation landscape.

Furthermore, manufacturers expect to gain from more cost-effective purchases of vehicle parts as a result of an improved supply chain system made possible by GST. The Indian government has specified a number of important aspects, including the classification of cars and bikes under the 28% GST bracket and the implementation of cess ranging from 1% to 15% on various types of automobiles.

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Discover The GST Rate On Automobile Industry

• Under the new GST regime, a 15% tax is levied on motor vehicles designed to transport up to 13 people, including the driver.
• Electric vehicles with an engine capacity of less than 1200cc and a length of less than 4000 mm that use either a spark-ignition internal combustion reciprocating piston engine and electric motor or a compression-ignition internal combustion piston engine (diesel or semi-diesel) and electric motor for propulsion are subject to a 15% tax.
• A luxury car powered by petrol, liquefied petroleum gas (LPG), or compressed natural gas (CNG), having an engine capacity of less than 1200cc and a length of less than 4000 mm, is taxed at 18%.
• Diesel-powered vehicles with engine capacities of less than 1500cc and lengths of less than 4000 mm are taxed at 18%, with an additional 3% for three-wheelers.
• Cars in India with engine capacities of less than 1500 cc are subject to a 17% tax.
• The motor vehicle tax rate is 20% for vehicles with engine capacities greater than 1500 cc (except those defined in S. No 52B).
• Sports Utility Vehicles (SUVs) and utility vehicles with engine capacities greater than 1500cc are subject to a 22% GST tax.
• Old and used car, electric cars, and ambulance vehicles are exempted from taxation.
• Refrigerated motor vehicles are taxed at a rate of 18%.
• Special purpose motor vehicles also fall under the category of 18% tax.
• Motor vehicles designed to transport ten or more persons, including the driver, excluding buses used for public transport and exclusively operating on biofuels, incur a rate of 28 % tax.
• Additionally, there is a 28% tax on goods-transporting cars excluding the refrigerated ones.
•  The GST rate on automobile spare parts is now 28%  which was previously taxed at the rate of 12%.

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A Comprehensive Analysis Of The Impact Of GST Tax On Commercial Vehicle

As an experienced tax adviser, I have seen personally how GST has transformed the commercial vehicle market. Consider the simplified tax system, which has replaced a variety of indirect taxes. Commercial vehicles are subject to multiple GST rates, ranging from 12% to 28%, based on various factors such as vehicle type, capacity, and fuel type. This simplification has increased compliance and reduced operational complexity for businesses involved in the transportation of goods and passengers.

Let us use a simple analogy inspired by driving a car to demonstrate how GST affects commercial vehicles.

Consider GST to be a busy road, and commercial vehicles to be a bunch of cars travelling on it. The journey of GST is similar to the movement of these cars, and it depends on both the sellers and the buyers working together. Imagine commercial vehicles to be the key players in this category of vehicles. Suppliers act as supportive cars in the background, while customers take the lead and decide where the group goes. The group's speed, like how effectively GST rules are followed, is determined by how well suppliers and buyers work together.

Just as driving in a group of cars demands paying attention to what is there in the front and behind, reaping the most benefits from GST requires careful checking by both sellers and buyers. Whether you manage a group of commercial vehicles or are considering buying one, being GST-ready means ensuring that everyone, both the suppliers and buyers is following the GST rules.

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GST Impact On Passenger Vehicles

The way GST impacts various types of vehicles is similar to presenting a story with different chapters. Smaller vehicles with engines below 1200 cc will now have a base GST rate of 28%, along with a cess of 1% and 3%. This is lower than the previous tax range of 31.4% to 33.5%. As a result, the price of these smaller cars will likely remain the same or decrease slightly.

However, there is good news for those planning to buy luxury cars such as sedans and SUVs with engines of 1,500 cc or more, lengths over 4,000 mm, and ground clearances exceeding 170 mm. Their new GST rate is 28%, plus an additional 15% charge. This is much lower than the previous tax range of 46.6% to 55.3%. As a result, the price of these larger vehicles will fall, making them more affordable for buyers.

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Conclusion

In short, the gst impact on automobile sector is quite favorable for customers planning to buy smaller cars like the Maruti Suzuki and Santro. Scooters and motorcycles with engine capacities ranging from 150 to 180cc are subject to 18% GST and a 3% Cess. However, if you want to buy larger bikes like Harley Davidson, you need to face a higher tax of 28% GST plus a 17% cess.

As an experienced tax adviser in India, my suggestion is to explore these changes wisely. If you need further assistance regarding GST, you can consult our experts in DSRV India to gain the best advice.