GST (Tax) On A New Car In India

Introduction

Have you ever wondered how much GST we end up paying when buying a new car?  Or have you ever thought about whether we are paying more or less tax in the GST regime compared to the VAT regime? Not sure about the answers? Then read on, as today we will discuss the tax rates under GST and compare that with the taxes we paid in the VAT regime. 

VAT Vs GST On New Cars

So when there was the VAT regime the taxes were divided into four categories and based on that the total taxes were decided. The four categories were:

1). Small cars with engines up to 1200 cc

2). Mid-size car with engine capacity between 1200 and 1500 cc

3). Luxury cars with engine capacity of over 1500 cc

4). SUVs with engine capacity over 1500 cc and ground clearance over 170 mm

The taxes on these categories were 28%, 39%, 42%, and 45% respectively.

But when the GST regime came into force on July 01, 2017, a new tax structure was made and it was said that there will be a uniform tax rate across India and the taxes will be lower compared to the VAT regime. So below is the table that lists the GST you pay when you buy a new car under the new tax arrangement. 

So the question arises are we now paying less? Let's find out with the help of an example. Assume you buy a petrol-powered car whose ex-showroom price is 10 lakhs and it is under 4 meters in length plus it has an engine capacity which is less than 1200 cc. 

So the total GST you will be paying on it would look like the below-

Ex-showroom= ₹ 10,00,000

GST (@28%)= ₹ 2,80,000

Cess (@1%)= ₹ 10,000

Total= ₹ 12,90,000

In the VAT regime on the other hand your car price would have looked like this-

Ex-showroom= ₹ 10,00,000

VAT (@28%)= ₹ 2,80,000

Total= ₹ 12,80,000

(Note- the above VAT rate is the combined percentage value and it also includes excise duty)

From the above example, it is clear that the added cess results in the extra tax you end up paying in the current tax arrangement. Also, as you go higher in the segment this gap widens. So technically due to the additional cess, the public ends up paying more even though the GST rates look less compared to the VAT rates.

Still didn't get that? Worry not here is another table showing side by side comparison-

To conclude GST rates in themselves are lower but to compensate for the loss in revenue due to its implementation government has introduced an additional cess. This cess ends up increasing the final price of cars and as we go higher in the segment the taxes rise to as much as 50% of the car's ex-showroom price. Thus as end consumers, we are paying up more taxes under GST compared to VAT when we buy a new car in India.

Also Read:

• Here is all that the automobile industry got in the Union Budget 2022-23
• Check out the list of safest cars to buy in India under 30 lakhs

We hope this post provided better clarity on how much taxes we pay when buying a new car. Until then, if you liked what you read, don't forget to share this post with your family and friends. And if you have any feedback or suggestion you can write us at contact@anantraj.co.in.