GST Impact on Automobiles in India 2023


The automobile industry in India is a significant market that annually produces a considerable number of cars and bikes, primarily due to the country’s massive population. With the implementation of GST, numerous indirect taxes have been subsumed. In this article, we will examine the applicability of GST to the automobile industry.

SegmentExcise*Nccd  +auto   cessVAT*Road tax*Motor vehicle taxTotalCGSTSGSTTOTALDifference
Small Cars <1200cc12.50%1.1%14%State basedState based28%(approx)9%9%18%10%
Mid-SizeCars from 1200cc to 1500cc24%1.1%14%State basedState based39%9%9%18%21%
Luxury Cars>1500cc27%1.1%14%State basedState based42%14%14%28%14%
SUV’s >1500cc, >170mm ground clearance30%1.1%14%State basedState based45%14%14%28%17%

How GST has impacted the Automobile Industry: Can Customers Benefit from Lower Valuations?

The introduction of GST has had a significant impact on the automobile industry in India, which is one of the largest producers of cars and bikes globally. GST has subsumed most of the indirect taxes, and this article analyses its impact on the automobile industry.

GST Applicability on Different Segments of Automobiles:

Two-wheelers: Low Impact

The two-wheeler sector has not been significantly impacted by GST, as engines below 350cc are levied at 28%, and engines above 350cc at 31%. This segment was earlier taxed at 30.2%, and as a result, the impact on the prices of 81% of the market would be largely unaffected.

Commercial vehicles: High impact on Mini Buses, negligible effect on other vehicles

The commercial vehicle segment comprises commercial vehicles and three-wheelers. Earlier, the segment was paying a total of 30.2% tax, which included 12.5% Excise Duty, 1% NCCD, 12.5% VAT, and 2% CST. After GST, the overall impact on the segment is a slight dip of 2.2%, as the levy is 28%. Therefore, the impact on valuation is negligible, and there would be no change in the prices of tractors. However, the maximum impact would be visible on the new category of minibuses ferrying up to 13 passengers. These vehicles would invite a 15% cess on top of the base rate, shooting up the total GST to 43%, which is a cause of concern.

Passenger Vehicles: Enjoy big rides

Small cars (both petrol and diesel variants; engine below 1200 cc)

The base rate for economic cars would be 28% GST, along with a cess of 1% and 3%, which is smaller than the current 31.4% to 33.5%. Therefore, the prices of this segment would either be neutral or reduced marginally.

Bigger sedans and SUVs (1,500cc or more engine size, Over 4,000 mm length and Over 170mm ground clearance)

In this segment, buyers will enjoy a price cut. The current taxation rate was 46.6% to 55.3%, which was much higher than the new GST rate of 28% (+15% cess).

Levy on Green Vehicles: A cause of concern

A 15% cess above the base GST rate of 28% on green vehicles is questionable, as it is much higher than the existing 30.3% rate. While officials have claimed that smaller hybrid vehicles are excluded from an additional cess of 15%.

Heavy taxation burden on Demo cars

GST demands a high tax rate on demo cars. Currently, these vehicles are taxed at 0.5%, while they are sold in the used car market after a year or so. With GST, tax rates of 28% and 43% of the sale value would be levied.

Overall, the impact of GST on the automobile industry is a mixed bag. While some segments have enjoyed price cuts, others have seen higher taxes. However, with a simplified taxation process, the industry is poised for growth, and customers can expect to benefit from lower valuations to some extent.

Revolutionizing the tax structure in India, the implementation of the Goods and Services Tax (GST) has brought a significant change in the pricing of various automobiles in the country. The new tax structure has brought both good news and concerns for the automobile industry and the consumers alike.

For those in the market for small family cars, the GST brings a welcome change, as a minimum cess of 1% has been charged on top of the GST rate of 18%, making small cars like Alto, Santro, Nano, Datsun Go more affordable.

However, the picture is not as rosy for bike enthusiasts. Scooters and bikes with an engine capacity between 150cc to 180cc will attract GST at 18% plus a 3% cess. On the other hand, high-end bikes such as Enfield 500CC and Harley Davidson, with an engine of greater than 350CC, will be charged GST at a higher rate of 28%, and an additional 17% cess will be levied.

It may come as a surprise that yachts, aircraft, and personal jets fall under the 3% cess bracket, instead of the 15% cess, while also attracting a GST of 28%.

Furthermore, the competitive nature of the industry has led car manufacturers to offer free services and warranties to attract customers. Under the GST, such free goods and services will also be subjected to taxation, which may impact the overall pricing of automobiles.

In summary, the GST has brought about a mixed bag of reactions for the automobile industry. While it has brought relief for some, it has also caused concerns for others. Only time will tell how the GST implementation will impact the pricing and demand for automobiles in India.