Ahead of the Diwali season, a big bonanza awaits car buyers in the form of GST rationalisation.
The 56th meeting of the GST Council has announced that the GST rate on all small cars has been reduced from 28 per cent to 18 per cent.
Small cars referred to here are the petrol, LPG, or CNG cars with engine capacity up to 1200 cc and length up to 4000 mm, and diesel cars with engine capacity up to 1500 cc and length up to 4000 mm.
The Council also announced that the motorcycles with engine capacity below 350 cc will also be taxed at 18 per cent as against 28 per cent earlier.
Further, for the three-wheelers classified under HSN 8703, the GST rate has been reduced to 18 per cent from the existing 28 per cent.
However, as per the announcement, the GST rate on all mid-size and large cars, like the vehicles exceeding 1500 cc or a length exceeding 4000 mm, is 40 per cent.
Further, motor vehicles in the category of Utility Vehicles, by whatever name called, including Sports Utility Vehicles (SUV), Multi Utility Vehicles (MUV), Multi-Purpose Vehicles (MPV) or Cross-Over Utility Vehicles (XUV), with an engine capacity exceeding 1500 cc, a length exceeding 4000 mm, and ground clearance of 170 mm and above, will also attract a GST rate of 40 per cent without any cess.
Earlier, buyers of big petrol and diesel cars paid an effective tax of nearly 50 per cent, comprising 28 per cent GST plus a hefty 22 per cent compensation cess. Under the new system, this has been rationalised to a flat 40 per cent GST.
All the rate changes will be effective from September 22, the first day of Navaratri, as per the announcement.
Industry leaders believe the overhaul will stimulate demand in the automotive and allied sectors while also removing long-standing distortions in the tax framework.
Welcoming the move, Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM), said, “This timely move is set to bring renewed cheer to consumers and inject fresh momentum into the Indian automotive sector. Making vehicles more affordable, particularly in the entry-level segment, these announcements will significantly benefit first-time buyers and middle-income families, enabling broader access to personal mobility.”
“The resolution of classification interpretations and the correction of the inverted duty structure will greatly streamline business processes across the automotive industry, supporting ease of doing business. We are confident that the government will also soon notify suitable mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective transition,” he added.