GST : How it will affect the car buying process


GST, touted to be one of the biggest tax reforms India will see, is about to come into force in the country next year. Rajya Sabha recently passed a bill to implement Goods and Services Tax that will have huge bearing on the automotive industry of our economy as well. Time for the car buyers to rejoice as car prices in India are expected to fall down by 10-17%.

GST is about to come into effect from next year

Image Credit: dwarkaparichay

What is GST?

Simply speaking, Goods and Services Tax is a common tax that will replace all the existing indirect taxes like VAT, excise duty and entertainment tax etc. It aims at making the whole indirect tax system simpler. According to the reports, the GST will stand at around 18%. It is expected to replace as many as 17 indirect central and state taxes thus bringing down the tax rate. The carmakers are expected to pass on this benefit to the buyers.

Advantages of GST

In the words of Yadvinder Singh Guleria, Senior Vice President, Sales and Marketing, Honda Motorcycle and Scooter India Pvt. Ltd., “The new simplified and uniform tax structure will reduce the cascading effect of tax-over-tax and provide a 360-degree ease-of-doing business for the complete automobile ecosystem, be it suppliers, manufacturers, dealers and most importantly customers who will get the benefit.”

Fall in prices of vehicles

At present, in the Indian car market, there are four slabs of excise duties levied on car depending on their size in addition to value added tax and cess. If a Standard tax rate of 17-18% is applied on all cars, car prices in India are likely to come down.

Car Prices in India
Car prices are expected to fall with implementation of GST

Image Credit: cbt

Also, organised battery and spare parts would become more cost competitive.

It should be noted that the benefits will accrue to the locally manufactured cars owing to lower taxation, Cars that take the CBU route, won’t be in for any benefits.

Change in buying preference

Under the GST, a standard tax rate will be levied on both compact sedan and mid-sized/full sized sedans. This in turn will narrow the difference in prices of these cars thus encouraging buyers to go in for bigger cars. A change in buying preference will thus be the most obvious impact of implication of GST. It must be noted that the sub four meter segment which commanded excise duties benefits is highly likely to undergo a change in price structure.

Uniformity in prices across states

Goods and Services Tax
Change in buying preference is anticipated

Image Credit: indiatransportportal

Another advantage that GST will bring along will be uniformity in the price of the vehicles across the country. At present, due to difference in excise rates in different states, the ex-showroom prices of same cars differ across states. It will also put an end to the practice of getting the vehicle registered elsewhere.

[myinlink sub=”” link=””]Checkout the amendments in the Motor Vehicle Act 2016[/myinlink]

Final words

GST, in all probability, will promote efficiency and remove cascading effect of taxes in the Indian car market. It is a significant step forward for our economy as a whole and will make Indian automotive industry more consumer and investor friendly.