Autobayng News Team
The new rates will take effect right in time from Sep 22, coinciding with Navratri which is a period of strong buying sentiment, and then spilling over to other festivities.“>
With the Union government ushering in much-anticipated GST reforms, aimed at boosting disposable income and driving consumption, the auto industry stakeholders have welcomed the move and anticipate it to spur the demand just when the festive season kicks in. For the automobile sector, electric vehicles (EVs) will continue to attract 5 per cent GST, while the small car segment will fall under the 18 per cent slab, down from the previous 28 per cent slab. On the other hand, premium SUVs, high-end EVs and luxury cars will attract a 40 per cent tax rate.The discontinuation of compensation cess levy has particularly been seen as a very pragmatic step by the industry. However, clarity on certain implementation aspects remains critical for a smooth transition. The new rates will take effect right in time from September 22, coinciding with Navratri which is a period of strong buying sentiment, and then spilling over to Dussehra, Diwali and other festivities.
Dealers will benefit from input tax credit on pre-revision inventory, paving the way for inventory build-up ahead of the festive season. However, FADA President CS Vigneshwar emphasised that earliest clarity is needed on the levy and treatment of cess balances currently lying in dealers’ books to avoid ambiguity during the transition.
Echoing the concern, Shailesh Chandra, President, SIAM, also said the industry body is awaiting the government to promptly notify mechanisms for the utilisation of compensation cess on unsold vehicles, ensuring a smooth and effective rollout of the revised GST structure.
The compensation cess under GST was introduced through a special law in July 2017 to encourage states to adopt the new indirect tax system, with a promise of revenue compensation for five years if their collections fell short of a 14 per cent annual growth benchmark. The cess was imposed on a range of luxury and demerit goods, over and above the standard GST rates, to build a dedicated corpus for this purpose.
| Passenger Vehicle category | Old GST- Base | Old GST- Cess | Old GST- Total tax payable | New GST- Total tax payable |
| Petrol, CNG and LPG vehicles with up to 4m in length and up to 1,200 cc engine, including hybrids | 28% | 1% | 29% | 18% |
| Diesel vehicles with up to 4m in length and up to 1,500 cc engine, including hybrids | 28% | 3% | 31% | 18% |
| Vehicles with up to 1,500 cc engine, including hybrids | 28% | 17% | 45% | 40% |
| Vehicles with >1,500 cc engine, including hybrids | 28% | 20% | 48% | 40% |
| Vehicles with >4m in length, >1,500 cc engine and >170 mm ground clearance, including hybrids | 28% | 22% | 50% | 40% |
| All EVs | 5% | 5% | 5% |
With the new GST rates in place, Kumar Rakesh, India Analyst- IT & Auto at BNP Paribas has estimated price elasticity at around 2x for passenger vehicles and 1.6x for two-wheelers, with higher sensitivity in the entry-level segments. However, he noted that demand disruption for the next two weeks is likely to be very limited, as the September 7-21 period coincides with Pitru Paksh, traditionally considered inauspicious for major purchases or celebrations in India.
Additionally, the 9-percentage-point increase in GST on two-wheelers above 350cc is expected to prompt Bajaj-Triumph and Hero-Harley to realign their product strategies in order to stay competitive against Royal Enfield in the premium motorcycle segment.
“It could also be negative for TVS Motors’ upcoming Norton branded motorcycles. Also, with the reduction in prices of ICE two-wheelers, attractiveness of electric two-wheelers could marginally impact their demand,” Kumar said.
| Two wheelers category | Old GST- Base | Old GST- Cess | Old GST- Total tax payable | New GST- Total tax payable |
| Two-wheelers with up to 350 cc engine | 28% | 0% | 28% | 18% |
| Two-wheelers with >350 cc engine | 28% | 3% | 31% | 40% |
Meanwhile, several states have raised concerns over potential revenue losses from the revised GST rates. “We would watch out for any increase in vehicle registration charges in any of those states resulting in price increases,” said Kumar.
Saurabh Agarwal, Partner & Automotive Tax Leader, EY India, noted that the automotive industry will need to carefully reassess the financial implications of state incentives and subsidies, many of which are tied to GST rates. This, he said, could require fresh negotiations with state governments to address possible changes in costs and clawback periods.
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