GST Impact GST Impact

Impact of GST on Automobiles sectorImpact of GST on Automobiles sector

Before GST implementation and unification of taxes, we had a series of indirect taxes in India, wherein every state had their own indirect tax structure. Now, after GST implementation, all these taxes have been subsumed to one tax.

Impact of GST on automobile sector particularly is considered as a positive thing as manufacturers of automobiles will have to pay reduced taxes and ultimately customers will also be benefited. Before GST, various taxes such as sales tax, road tax, sector tax, VAT, motor vehicle tax, registration duty, etc. were imposed. All of these have been subsumed to GST on automobile services.

Impact of GST on Automobiles sector

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GST Impact on Automobile Sector

GST tax on automobiles has significantly reduced the cost of transporting goods, as transportation anywhere in India doesn’t pass through check posts or various taxes. It has, in fact, reduced the price of automobiles across the country when compared to the prices before GST.

1. Reduced Operational Cost

CST or central state tax, which was applied when there was an interstate sale, has been eliminated. There is no longer need for automobile companies to maintain different warehouses at different locations. They can join various warehouses and enjoy low operating cost. Further, taxes paid on advertising, promotions, and other overhead come under input credit tax, which will lead to an additional decrease in operational cost.

2. Effect on Working Capital

Although operational cost is reduced, GST tax on automobiles has increased dealers' concerns and here’s why this has happened:

Whenever any vehicle is transferred, GST is cleared and capital is locked as the supply is taxable with GST. Now, the dealer needs to pay the GST on the exact day as the reception of advance. However, this will also make dealers more cautious to avoid hurting their outflow.

Another way GST will affect dealers is by cash lock-on free services. Many automobile manufacturers provide free services or warranty cards at the time of sales in form of customer benefits. Dealers will have to pay the GST on these at the time of issue but the customers may redeem these services any time later.

Also read: GST impact across sectors: Take a look at the winners and losers

Impact of GST on Automobiles sector

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GST Rate on Automobiles

GST rate on automobiles is calculated with the fixed base rate of 28% on all cars with additional cess slabs such as 1%, 3%, 15%, 17%, 20%, and 22%. Both the cess and base rate together impacts GST rate on the automobile sector.

1. Two-Wheelers

GST impact on two-wheelers is rather low as the 350 cc or below engine is taxed in 28% slab and engine above 350 cc is charged with 31% tax.

2. Commercial Vehicles

Most of the commercial vehicles fall under 28% tax, which was earlier 30.2%. However, minibuses have been greatly affected as these fall in 15% cess slab, which makes the tax 43%. While most commercial vehicles have seen a negligible effect after GST implementation, GST on 13 passenger minibuses has raised concerns.

3. Luxury Car

Luxury car tax scenario has seen good times with GST as these cars are taxed at 42-45%. But, this was previously 50% or more than that. So, the overall tax has reduced for luxury cars.

4. Small Cars

Small cars have not been highly affected by GST implementation as earlier the tax rate was 29% which included every tax including VAT. But, after GST, it is 28% and cess is 1%.

5. Hybrid Cars

The major GST effect on automobile industry can be seen in hybrid cars, as these are taxed 28% with additional 15% cess. Previously, hybrid cars were taxed at 30% only.

6. Spare Parts

Spare parts are taxed with the highest rate in the slab of 28% while previously it was just 12%, which makes the current tax charges more than double of what was charged before.

Also read: Highlights of Decision Taken in 25th GST Council Meeting

Check Out the Before and After GST Tax Rates on Automobile Industry

Category

Before GST

After GST

Two wheelers

30.2%

28-31%

Commercial vehicles

30.2%

28%

Luxury cars

50%

42-45%

Small cars

24-25%

29-31%

Hybrid cars

30%

43%

Spare parts

12%

28%

GST: A Positive Impact

The overall effect of GST on the automobile industry is positive, as, on a whole, it has reduced the rate. Further, GST has enhanced the manufacturing of automobiles by reducing taxes to one and made the taxation system less complicated than before. For obtaining detailed knowledge of GST's impact on other sectors and end users, check out gstinindia.in blog.

Also Check: Issues in Filing GST Returns with Solutions by CA Rajeev Khandelwal

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