The Union government is considering reduce the GST (Goods and Services Tax) on the small cars with an engine capacity of under 1200cc (i.e. 1.2L) ahead of this Diwali. The GST for the two-wheelers (including bikes and scooters) under the 350cc category is also under review. Currently, small cars and two-wheelers attract a GST of 28%, while vehicles above this category carry an additional 3% cess.
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Proposed Reduction: 28% to 18% GST
The central government has proposed to cut down GST from 28% to 18% under the revised rules. If implemented, small cars and two-wheelers will become nearly 10% more affordable. Such a decision just ahead of Diwali is likely to revive the declining sales of the small cars.
For reference, the Maruti WagonR hatchback measures 3,655mm in length and uses a 998cc petrol engine that’s good enough for 89bhp and 113Nm. Its prices start from Rs 6.30 lakh for the base variant, and go up to Rs 8.52 lakh for the top-end variant. At present, the model attracts a GST of 28%, but after the proposed revision prices could drop by 10%, translating into savings of Rs 20,000 – Rs 25,000 on entry-level vehicles.
Effect On Ex-showroom & On-Road Prices
Since ex-showroom prices are inclusive of GST, a reduction in tax will directly lower ex-showroom and on-road prices of the four-wheelers and two-wheelers. This revision will certainly provide a major boost to sales of the entry-level cars and bikes of sub 350cc category. However, the luxury cars are expected to fall under a higher tax slab of 40%.
At present, the battery-powered attract a GST of 5%, while hydrogen fuel-cell vehicles are taxed at 12%, with no additional cess. In the two-wheeler segment, models with engine capacity of up to 350cc are subjected to 28% GST with no cess, whereas bikes above 350cc fall under the 31% GST slab.
