Impact of GST on Cars & Two Wheelers

The automobile industry in India is a vast business producing a large number of cars and bikes
annually, fueled mostly by the huge population of the country. Under the current tax system,
there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor
vehicle tax, registration duty on car and bikes which will be subsumed by GST. Though it is too
early to provide an in-depth analysis of cost per product post GST implementation, as some
ambiguity still remains due to incentives/exemptions provided by different states to the
manufacturers/dealers for manufacturing car/bus/bike, our experts have taken the information
available, and predicted the future of this industry once GST goes live in July.

Current Tax Laws on Automobiles

Table showing the different types and rate of taxes levied on the passenger vehicles/SUV.

*Nccd *Road *Motor

Segment Excise +auto VAT vehicle Total CGST SGST TOTAL Difference
cess tax tax

State State
Small Cars <1200cc 12.50% 1.1% 14% 28%(approx) 9% 9% 18% 10%
based based

Mid-SizeCars from State State

24% 1.1% 14% 39% 9% 9% 18% 21%
1200cc to 1500cc based based

State State
Luxury Cars>1500cc 27% 1.1% 14% 42% 14% 14% 28% 14%
based based

SUV’s >1500cc,
State State
>170mm ground 30% 1.1% 14% 45% 14% 14% 28% 17%
based based
clearance

Presently, sales of used cars attract VAT, and in some states, a composite rate and Excise/VAT are
not applicable on advance received for supply of goods. Many states provide the Original
Equipment Manufacturers (OEMs)/component makers with different investment-linked incentive
schemes. The two main components of this scheme are subsidies and interest-free loans allied
with VAT/CST payable on sale.

Sale of goods/service without any form of consideration is currently exempted from being taxed
under VAT and Service tax. Importers and dealers currently are ineligible for the CVD and
excise duty paid by OEMs (Original Equipment Manufacturer).When goods are transferred from
the factory, excise duty has to be paid but no VAT/CST is applicable under current tax laws.
These vehicles are exempted from the Nccd/auto cess: electrically operated vehicles, three-
wheeled vehicles, hydrogen vehicles based on fuel cell technology, vehicles used solely as taxis,
the ones used by physically handicapped persons, hospital ambulances.

Impact of GST on the Automobile Industry

The two taxes charged to the end consumer on car and bikes currently are excise and VAT, with
an average combined rate of 26.50 to 44% which is higher than the expected rates of 18 and 28%
under GST. Therefore, there will be less burden of tax on the end consumer under GST.

There is good news for the importers/dealers as they would be able to claim the GST paid on
goods imported/sold whereas currently, they are ineligible to claim the excise duty and VAT paid.
Excise paid on stock transfer will be covered by IGST under the GST law. Advance received for
supply of goods will also be taxed under GST. GST would help the manufacturers in procuring
auto parts at a cheaper cost due to an improved supply chain mechanism under GST.

The final GST rates have been announced for the different kind of automobiles. As expected the
GST on car and bikes are kept under the 28% bracket and a list of cess to be levied on a different
kind of automobile has also been declared by the Indian government. Cess has been levied on
different kind of automobiles ranging from 1 to 15%. We have created an infographic for an
understanding of different cess rates applied on different kind of automobiles.
GST will be beneficial for the people in the market for small family cars like Alto, Santro, Nano,
Datsun Go as a minimum cess of 1% has been charged over and above the GST rate of 28%.
Bikes which have an engine of greater than 350CC like Enfield 500CC or Harley Davidson etc
would be charged GST at the rate of 28% and an additional 3% cess would be levied. It is
difficult to understand the placement of yachts, aircraft, personal jets under the 3% cess bracket
along with the small cars having engine >1200CC and <1500CC instead of the 15% cess.

Currently, there are a lot of free services/warranties offered by the car manufacturers due to the
competitive nature of the industry. These free goods/services are not taxed under current tax
laws. Under GST, the free services/ warranties would also be eligible for taxation.

Conclusion

Implementation of GST would reduce the cost of manufacturing of cars and bikes due to the
subsuming of different taxes levied currently. Under GST, the taxes would be charged on
consumption state rather than the origin state, which would give a boost to the growth rate of
the automobile industry.

Hello GST: impact on the auto industry

By

Harishankar Subramanian
Partner, EY

GST will be positive for the automotive sector because of the efficiency and removal of
cascading that is expected with GST, says Harishanker Subramaniam, national leader - indirect
tax, EY.

Even the two percent CST will be an integrated GST (IGST) which will be fully creditable by the
dealer when he sells the car in the other state, he says. "From a procurement point of view too, if
there are interstate procurements, we suffer today at 2 percent CST which is a cost to the
manufacturer, that also will not happen because those interstate procurements will have an IGST
in it which is again available as a full credit to the manufacturer if the credit rules are simple and
easy," he explains.

Below is the verbatim transcript of Harishanker Subramaniam's interview with CNBC-TV18's

Menaka Doshi

Q: How will the GST benefit the automobile sector?

A: GST will be positive for the automotive sector primarily because of the efficiency and the
removal of cascading that is expected with GST. And, to give you an example, in an automobile
sector, a car is manufactured in a particular state and generally, 80 percent of these cars are sold
to states outside the state of manufactures to dealers outside the state. So, today to straight away
give you an example, the two percent Central Sales Tax (CST) that they pay will not be there
tomorrow because hopefully origin tax is not there.

Even the two percent CST will be an integrated GST (IGST) which will be fully creditable by the
dealer when he sells the car in the other state. And even from a procurement point of view, if
there are interstate procurement we suffer today at 2 percent CST which is a cost to the
manufacturer, that also will not happen because those interstate procurements will have an IGST
in it which is again available as a full credit to the manufacturer if the credit rules are simple and
easy.

The second efficiency could be also on the input side. A bigger, more easy credit mechanism so
that all the taxes on the input side, whether it is input services, whether it is capital goods,
whether it is manufactured products, are set off against the output liability of GST.

Q: But, what about the negatives or the ambiguities?

A: One other fact which is very important for car manufacture is that many car manufacturers
which generally have a very large investment, have today state incentives. The incentives are
there in many manufacturing states like Maharashtra, Gujarat, Tamil Nadu and so on and so
forth.

So, one of the facts that the car manufacturers and automobile manufacturers have to keep in
mind is that these state incentives are based on the current value added tax (VAT) and CST that
they pay. Tomorrow with CST going away, the states will have to make do these commitments of
incentives on the basis of whatever they correct under the GST regime. So, that is another
important fact that the auto manufacturers have to keep in mind that they will have to go and
renegotiate those memorandums of understanding (MoU) that they have with the states.

The second fact is today, in the car industry the small cars have a differential treatment in excise
depending on engine displacement and the size and all. That is another factor that will come into
play. Will those differences exist in the new GST regime? Will they all fall under a standard rate
of 17-18 percent if you take the reference of the current CEA report or will there be a lower rate
for small cars? This is another question that comes to be debated because then the efficiency and
the quantum will depend depending on what rates they fall in.

Q: So, when you square those against the efficiencies and the benefits that you outlined in your
first answer, does this effectively mean a lower tax burden for automobile companies?

Some of which would go towards their bottom line and some maybe could get passed on to
consumers or not at all?

A: Purely on efficiency, there should be a benefit to an auto manufacturer.

Q: Even if the standard rate of 18 percent were to apply on all cars except for luxury cars.

A: Even on 18 percent, there will be some degree of efficiency that will be there.
Q: So it will mean a lower tax burden is what you were saying?

A: It should.

GST rates to benefit auto industry, says

SIAM
New Delhi, May 19:

The Society of Indian Automobile Manufacturers (SIAM) on Friday said the GST rates on
automobiles were on the expected lines 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,” Vinod Dasari, President, SIAM, said.

The government has done well to ensure stability in taxation while at the same time moderating
the taxes wherever they were too high, he said.

Differential GST for electric vehicles will also help electric mobility to gain momentum in India.
“We would have liked to see a similar differential duty on hybrid vehicles to continue,” Dasari
said.

Government has always encouraged environmentally friendly technologies and with the current
focus on reducing emissions of greenhouse gases and reducing carbon footprint one would have
expected the lower taxation to continue on such vehicles in a technology agnostic manner, the
industry body said.

“The inclusion of 10-13 seater vehicles used mainly for public transport in the same tax bracket
as luxury cars with a 15 per cent cess is also unexpected and may merit a review,” Dasari added.

All You Need To Know About The Impact Of

GST On The Automobile Industry
If you're planning to buy a new car or motorcycle, then you may have to pay more once the Goods and
Services Tax (GST) is implemented. Under the new tax system, an additional cess will be imposed.
Small petrol cars with engine capacity of 1,200cc or less will attract an additional one percent cess. The
diesel vehicles with engine capacity of 1,500cc or less than that will get three percent additional cess.
Sports utility vehicles, luxury cars and larger sedans will be benefited from the new GST
scheme. Even after the additional 15 percent cess, the total levied tax will be less than the
currently imposed tax.

In the two-wheelers segment, the motorcycles with engine capacity of more than 350cc will be
imposed with an additional three percent cess. The same amount of cess will be levied on private
aircraft and yachts.

As per industry experts, the implementation of the additional cess in the entry-level segment will
result in hampering the growth of the country as a manufacturing hub for small cars.

The automobile industry is also seeking clarity on the taxes applied to the auto components. The
Finance Minister had stated that the industrial intermediates would be taxed at 18 percent. But it
is not yet clear whether the auto parts fall under this category.

Chairman of Maruti Suzuki, RC Bhargava said that impact of GST on vehicle prices would be
clear only when the final prices are announced for different segments of vehicles. The prices are
likely to benefit the premium end of the market.

How GST will alter contours of the automobile industry - for the better

India will continue to be a small car market, says RC Bhargava, chairman of Maruti Suzuki,
India’s largest carmaker. Small cars (hatchbacks and compacts) in the price range of Rs 5-8 lakh
account for a little over three-fourths of the car bazaar.

And it’s this price-sensitive segment carmakers were apprehensive about in the run-up to the
announcement on goods & services tax rates.

As it turns out, the GST Council did well to make the transition revenue neutral and sand small
car buyers will not see much difference in prices come July 1. A GST of 28% plus 1% cess for
petrol cars (and 3% for diesel) won’t be much of a change from the current effective tax of 29%
on small cars (VAT plus excise plus cess).

More significantly, though, GST could well provide a fillip to the aspirational segments — mid-
sized sedans and sports utility vehicles (SUVs) — especially at the luxury end — which
combined account for just 25-30% of the market. The difference between GST rate (plus cess)
and current value-added tax regime is almost 10 percentage points, which will go some way in
making the premium hot rods more accessible to buyers. “SUVs will provide a real alternative
and a further fillip to the car industry,” says VG Ramakrishnan, managing partner at Avanteum
Advisors, an auto consultancy.

For the first two months of the current fiscal, UV sales grew 16% over a year ago, to 1.4 lakh
units.
The surprise: Removal of hybrid vehicles from the lower tax bracket has stumped many
carmakers that had begun work on a series of alternatives for the future, say industry experts.
Hybrids could have offered differentiation for the executive segment but they have now become
unsustainable, adds Ramakrishnan, with GST rates on par with fossil fuels like diesel and petrol.
ET runs you through the impact of GST on the various car segments:

LUXURY CARS
Doubtless, this segment will be the biggest beneficiary of GST, with gains anywhere between Rs
60,000 and Rs 6 lakh or 4% to 9%, depending on the state. “The GST regime promises growth
potential to the luxury car industry, which long remained prohibitively taxed, making them
unaffordable for aspirational buyers,” says Roland Folger, CEO of Mercedes-Benz India.

The luxury car market in India at 35,000 to 37,000 units is just 1% of the overall passenger
vehicle market.

At 1.2%, India has one of the lowest penetration rates for the luxury segment, significantly
behind countries like Russia, China, Brazil and even South East Asian markets such as Malaysia.
In contrast, luxury car penetration in Germany is 24%, 8% in China, in Malaysia it is 5.4% and
2.5% in Indonesia.

GST may well provide the impetus the segment needed. Luxury carmakers have already begun
passing on benefits of a lower tax regime. Mercedes, for instance, reduced prices up as much as
Rs 7 lakh on upper end models, with an average price drop of 4%. “We have seen renewed
interest and an increase in showroom footfalls after we passed on the GST benefits to
customers,” adds Folger.

Prohibitive pricing primarily due to high tax structure was a key reasons for the segment not
growing to its full potential. Industry experts say an increase in volumes will also attract added
investments both from the dealer network and also from the parent companies; this will lead to
additional manpower requirement and hiring across levels both from the manufacturers and the
dealers.

COMPACT CARS
Although the rate on small cars is largely revenue-neutral, a marginal bump in prices is expected.
Rakesh Srivastava, director, sales and marketing, Hyundai Motor India says, “With prices of
mid-size sedans and SUVs likely to go down, offers are higher on them currently. But once GST
is implemented, we expect schemes and offers will move to smaller cars to ensure demand is
sustained.”

BIG CARS, SUVS AND HYBRIDS

Even as the noise against bigger diesel vehicles was increasing, a benefit accruing out of a
rationalisation exercise for bigger cars and SUVs turned out to be a big surprise. The narrowing
price gap between sub-4 metre and mid-size cars is likely to lead to shift between segments.
However, the industry has varying opinions. A 0-5% relative price change between small and
large cars will not change buying patterns or significantly impact the sales growth pattern
towards SUVs, says Pawan Goenka, M ..

“With rates going down for bigger vehicles and income levels going up, it will be more
affordable to buy bigger vehicles in the future.” Adds N Raja, senior vice president, sales &
marketing, at Toyota Kirloskar: “We think the industry will break into double digit territory this
year.”

The 43% tax (28% GST plus 15%) on hybrids is too high for fuel-efficient vehicles, shrug
carmakers, who may well decide to phase them out. While M&M is extremely bullish on electric
vehicles (EVs) – which the government is also betting big on – it hasn’t taken a call on hybrids
yet. “We are doing market research to check whether consumers will be willing to pay the hybrid
premium,” points out Goenka.

The 13-23% price hike in hybrid vehicles as a result of GST could impact demand for Maruti
(5% of its sales volumes) and Mahindra (4%), according to a research report by CIMB
Securities. Maruti Suzuki, one of the largest sellers of mild hybrids Ciaz and Ertiga, saw sales of
over 100,000 units since 2015 launch.

Prices of Toyota’s hybrids Camry and Prius are likely to go up by Rs 5-7 lakh. Raja feels demand
will veer towards petrol in both segments. “Hybrid vehicles are a bridge to move to fully
electrified vehicles. Without infrastructure, it will be tough to make the transition quickly,” he
adds.

GST may well go on to alter contours of the car market, so far dominated by hatchbacks and
compacts. Expect more buyers to gravitate towards mid-size sedans and SUVs.

If there is a concern, it’s that state governments may impose additional duties to make up for
revenue loss; if that happens, it will be contradictory to the GST motto of one nation, one tax,
says Archit Gupta, CEO of ClearTax.com.
GST Impact on Automobile Industry in India
The automobile Industry is very hopeful with the GST regime as the government is very cautious
particularly for this sector. The industry of automobiles is tremendously big which tackles the
manufacturing of a very large chunk of cars and bikes every year. The population across the
nation is also the major factor of this turbulence as it constantly seeks for dynamic technology
and newer models. The GST is all set to subsume almost all the taxes under its ambit like excise,
VAT, sales tax, road tax, motor vehicle tax, registration duty which will further benefit the
procedural ways of the automobile industry.

However, going in deep and bifurcating per product impact will be senseless as the GST rules
and rates may get a shuffle due to individual exemptions and incentives provided according to
the model and its growth.

Government Notified GST Tax on Automobiles

CATEGORY ENGINE Pre-GST Post-GST Price Effects

Under 4-metres Under 1.2-litre Petrol 31.5% 29% -2.5%

Under 4-metres Under 1.5-litre Diesel 33.25% 31% -2.25%

Under 4-metres Above 1.2-litre Petrol or 1.5-litre Diesel 44.7% 43% -1.7%

Above 4-metres Above 1.2-litre Petrol or 1.5-litre Diesel 51.6% 43% -8.6%

SUVs – 55% 43% -12%

Hybrids – 30.3% 43% +13.3%

Electric Vehicles (EVs) – 20.5% 12% -7.5%

In the current form, advance received on goods supply is not attracting Excise/VAT and
composite rate while in some of the states there is VAT applicable on used cars sales. While
many of the states do make available OEM Original Equipment Manufacturers
(OEMs)/component manufacturer linked with a various investment linked incentive scheme. The
significant components can be considered as interest-free loans and subsidies being attached with
CST/VAT paid on the sales.

Read Also: GST vs VAT: Simple Way to Describe the Differences

It is also learned that the selling of goods and services unattached with a form of consideration is
exempted from taxes under the service tax and VAT. While the dealers and importers are not
eligible for the excise duty and CVD which is paid by the OEMs(Original Equipment
Manufacturer). The current tax rules mentioned that VAT/CST is not applicable but excise duty is
certainly in the tax part while transferring any goods from the manufacturers place and factories.
As these vehicles have exemptions from auto cess/Nccd: electrically operated vehicles, three-
wheeled vehicles, hydrogen vehicles based on fuel cell technology, vehicles used solely as taxis,
the ones used by physically handicapped persons, hospital ambulances.

GST Impact on Indian Automobile Industry

Overall it is defined that the GST impact on the automobile industry is less than the previous tax
scheme due to the lowered tax scenario. As the automobile industry has already gone through
some tough situations like demonetization and after which emissions norms rule hit the grounds
of automobiles sector. It is now done that the industry will get benefits out of GST with
minimum hassle free procedures and rate fixation across the nation.

As there will be more or less similar case for the smaller cars due to the analytics of rates
comparing from both the pre-GST and post-GST effects. The tax scenario has been adjusted in
between 1 to 15 percent in which the small cars are being charged with 1% cess rate with 28%
GST while talking about the middle sized cars it is being levied with the 3% cess and for the
luxury cars segment, it is fixed at 15% cess.

Recommended: GST Master Class: Schedule and Time Table for Live Streaming

On the basis of this, the conclusion comes at:

 Luxury cars – The tax rates are combined at 42 to 45% in the GST era as compared to more than
50% above rates previously and has made a cheap tax rate scenario for the luxury cars GST rates.

 Small cars – The earlier tax rates were concluded at 29% including VAT and other local levies
while in the GST scenario, the same impact is created with 28% GST and 1% cess rate on it.

 Hybrid cars – The biggest damage considered in the automobile sector can be attributed to the
hybrid vehicle despite its promising future in the environmental sustainability. It has been levied
with 28% GST rates along with the 15% extra cess on it.

While it is totally upon the discretion of automobile manufacturers to increase or decrease the
prices of vehicles, it is to be seen in upcoming future to have stable effects on the whole industry.

SIAM SUGGESTIONS ON GOODS & SERVICES TAX (GST)

The auto industry looks forward to introduction of GST. However, based on whatever inputs we got,
there are several concerns of the industry which have been mentioned below:

Taxes to be covered/ subsumed

All kind of domestic indirect taxes should be subsumed in the proposed GST, as suggested by Kelkar
Committee. This should include Road Tax/Motor Vehicle Tax also.

After introduction of GST, no additional tax should be introduced/ levied. A provision be made in the law
that no new levy or tax be introduced.

Any change, if required, in future (for specific needs like calamity, education, infrastructure, etc.) should
be done through modifying the rate of taxation under the GST regime and not through any additional
levy/tax/cess, etc.

Bring in used vehicle trade under GST framework with a token levy to make used vehicle trade more
organized.

1% GST rate will provide substantial annual revenue to the exchequer.

Tax Rates
The tax rate on inputs and output should be fixed considering the pattern of input purchase and output
sales which varies considerably. This has implications for the input tax credit. While vehicle
manufacturing takes place in a few states with supply to other states (local sales account for less than
10% of total domestic sales), majority of components (around 70% - 80%) are procured from vendors
within the state. If tax rate of components/inputs is more than the tax rate at the time of supply of
complete vehicles (Completely Built Units), then refund would arise. Hence, to avoid that, it is suggested
that

Uniform rate of tax should be charged on complete vehicles (whether by way of sale or by way of
transfer) and inputs, against which input credit should be allowed.

Tax paid on complete vehicles on movement from factory should be made available as input credit to the
vehicle dealers.

Manufacturers could give state-wise break-up at periodically to respective state governments who may
settle it through appropriate clearing house mechanism.
Considering the current level of taxation, a suitable tax rate may be adopted. Tax rates should be uniform
across states and there should be one authority to which payment would be made by way of one
challan.

Tax Base & Levy

Goods and services should be classified on the basis of HSN and GATTS (at both central and state level).

A common base should be adopted for taxation of both Central and State GST. Under the present
taxation system, interstate sales tax and local sales tax is levied on excise duty in respect of the
manufactured goods resulting in cascading of taxes.

In case of non-sale, where transaction value of goods or services is not determinable and when GST is
charged, a simple mechanism of valuation could be adopted on the basis of cost.

Under GST, it is suggested that the basis of tax credit should be on ‘Cost to Business’, i.e. any tax which is
paid and forms cost to business should be allowed as tax credit, both at the Central & State level.

The document based credit should also be dispensed with and could be substituted by appropriate
certification by independent Chartered Accountant (or the Appointed Company Auditors). The same
could be subject to appropriate audits by trained government officers and could be IT enabled.

Diesel and motor spirit should be brought under GST with input tax credit and mechanism to avail the
same. VAT on diesel and motor spirit constitutes a significant element of cost for the transport industry.
It is suggested that total chain of input credit should remain unbroken and hence, all inputs should be
treated equally for the purpose of allowing input credit.

Others
In the proposed GST system, it is not known whether stock transfer would remain exempted from tax (at
present, sales tax is not levied on Stock Transfer) or would be made taxable in the importing state; the
industry needs to understand the treatment of stock transfers for the purpose of input tax credit.
There should be no distinction between input and capital goods. Presently, definition of Capital Goods
under Central excise law and state VAT is not uniform. Under State VAT, definition of capital goods and
also the rate of taxation vary from state to state. As regards periodicity of taking credit, excise and VAT
laws differ.

In respect of existing exemptions having sunset clause, appropriate transitional provisions should be
introduced to ensure continuity of existing benefits. A clarification is needed on how the existing sales
tax benefit schemes e.g. loan, deferral would be affected.

The State Goods and Services Tax Act, State GST Act should be a common Act operated/implemented by
all the states and Union Territories (similar to present Central Sales Tax Act) covering transactions related
to goods, services and exports.

Concept of ‘Tax Invoice’ should be continued for availing State GST credit.

To ensure viability of EOU under severe competition, timely refund of tax is needed. Effective refund
system should be in place for smooth operations of EOUs. Presently, EOUs are eligible to get refund of
CST on interstate purchase of inputs used in the production of export goods and local VAT content of the
export product is allowed to be deducted against the DTA Sales and the balance, if any, is allowed as
refund.

Under a dual GST structure (a Central GST and a State GST), there could be a situation where the Input
Tax credits which remain unutilized would be refunded to the assesses. Since the cross utilization of
credits between the Central GST and State GST are not permitted, there could be a situation of payment
on the one hand and a refund situation on the other. In order to avoid this situation cross utilisation of
input tax credits should be allowed.

Procedural changes should be notified in advance. The industry should be given 6 months lead time
before introduction of GST.

State specific incentives should be protected under GST.

GST effect on auto: Here’s what will become

expensive and what will get cheaper
There is a lot of confusion right now on how much various things will cost after implementation of GST
(Goods and Services Tax) and automobiles are one of them. Various manufacturers are offering pre-GST
discounts but some aren't. This creates confusion for a potential buyer as to which vehicles will get
cheaper and which ones won't. While the GST proposal seems beneficial largely, small cars aren't going
to witness much of a change in prices after GST, while luxury cars will get cheaper. In order to clear the
confusion and help you decide on whether to buy right now or wait, here's a complete break-up of what
the upcoming GST structure holds for each category in the automotive sector.
Two-Wheelers

The classification of two-wheelers has been done in two types, those with the engine capacity of less
than 350 cc and those with greater than 350 cc. A total of 30.2 percent tax, which includes Excise Duty at
12.5 percent, NCCD at one percent (National Calamity Contingency Duty), VAT at 12.5 percent (Value
Added Tax) and CST two percent (Central Sales Tax) brings the total tax rate to 30.2 percent. After the
implementation of GST, two-wheelers under 350 cc would incur a tax of 28 percent while those higher
than 350 cc would be subjected to around 31 percent tax. So, while a Royal Enfield Classic 350 would
cost less, a Classic 500 might become more expensive. That said, the difference in the new tax scheme
would not be significant and hence will not affect the buying sentiment of the sector in the long-run.

Two Wheelers
Before GST After GST

Engine size below 350 cc 30.2% 28%

Engine size more than 350 cc 30.2% 31%

Commercial Vehicles

The commercial vehicle category is classified into two parts, commercial vehicles and three-wheelers.
The tax structure before the implementation of GST officially includes 12.5 percent Excise Duty, one
percent NCCD, 12.5 percent VAT and two percent CST bringing it to a total of 30.2 percent for the
commercial vehicle category. Three-wheelers are not taxed for NCCD, which means a total of 29.2
percent tax is levied on them. With the implementation of GST, a new category for buses which can ferry
up to 13 passengers would also be introduced. The new tax structure would mean that commercial
vehicles would see a small dip of 2.2 percent from 30.2 percent to 28 percent. Three-wheelers would
witness a slight reduction of 1.1 percent from 29.1 percent to 28 percent.
The new category of buses that can ferry up between 10 and 13 passengers incurs a total effective tax of
30.2 percent right now and will now witness a considerable jump with the new tax structure to 43
percent. Overall, the commercial vehicle sector will stay unaffected and potential buyers of buses with
load carrying capacity of 10 to 13 passengers would see a considerable rise of 12.8 percent tax.

Commercial Vehicles

Before GST After GST

Commercial Vehicles 30.2% 28%

Buses with 10 to 13 passenger capacity 30.2% 43%

Three wheelers 29.1% 28%

Passenger Vehicles
This category has the most number of segregations based on length of a vehicle as well as engine
capacity. The pre-GST tax structure included Excise Duty, NCCD, Infra Cess, CST and VAT.
However, with the new tax structure implementation, it would only be GST and additional cess
based on the vehicle's segment.

Sub-4 metre petrol cars, which were taxed at about 31 percent would incur 29 percent tax, while
their diesel counterparts would incur 31 percent after the implementation of GST as opposed to
roughly 33 percent. This would translate into a small change for the small car buyer, which won't
have any impact on the overall buying mood of consumers across the country.
Mid-sized cars that are above four metres in length but less than 1,500 cc in engine capacity, as
well as cars with more than 1,500 cc engine capacity, will witness a considerable dip. While the
former is taxed at 46.6 percent and the latter at 51.8 percent, the revised tax structure would
enable these cars to be taxed at 43 percent. The case for SUVs is also similar as they would incur
a tax of 43 percent compared to the 55.3 percent right now, translating into a drop of 12.3
percent. Certain manufacturers including luxury carmakers such as BMW and Audi as well as
Utility vehicle only manufacturers such as Isuzu have already started to pass the benefits of GST
to potential customers. The only segment here which would witness a considerable rise in taxes
is hybrid cars, wherein after including Excise Duty, Infra Cess, NCCD, CST and VAT the total
figure came to about 30 percent. Now, with the implementation of GST, these cars would incur
43 percent tax, which is considerably higher.

Passenger Vehicles (Four Wheelers)

Before GST After GST

Base Rate Cess Effective Rate

Small Cars Below four metres (Petrol) 31.4% 28% 1% 29%

Small Cars Below four metres (Diesel) 33.4% 28% 3% 31%

Mid-size cars more than 4 metres but less than

46.6% 28% 15% 43%
1,500 cc

Bigger Cars more than 4 metres and 1,500 cc 51.8% 28% 15% 43%

SUVs 55.3% 28% 15% 43%

Hybrid 30.3% 28% 15% 43%

While the theory of 'one country one tax' is better for a number of segments, it is also in contradiction to
the Government's move of going green in terms of mobility solutions as it makes hybrid cars
considerably more costly. This would make it harder for manufacturers to encourage potential buyers to
purchase hybrid cars over their regular counterparts. This may prove to be detrimental to the popularity
of hybrid cars as the GST plus additional cess tax structure for such cars is the same as SUVs and other
higher categories, translating into no monetary motivation for the consumers.