Taxes on Cars in India

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GST on Cars and Light Motor Vehicles

establishment of (GST) Goods and Services Tax has brought an affirmative influence on the motorcar sector. Earlier, the trader could not claim credit of excise duty & (VAT) value-added tax paid, which would further arrest the buying price. But, Goods and Services Tax (GST) has annihilated the cascading effect of taxes, thereby reducing the cost of the automobiles

How did the price of the car change due to Goods and Services Tax?

Previously, 2 major taxes were charged to the purchaser of cars which were value-added tax & excise duty. The incorporate rate would range anywhere between 26.5 percent & 44 percent. As compared to this, the Goods and Services Tax rates on cars are much lower ranging between Nil & 28 percent. This has reduced the cost of cars & benefited purchasers. Cost comparison of SUVs, sedans & hatchbacks is shown below:

SUV

Particulars Pre- GST (Rs) Post- GST
Cost of manufacturing 3,00,000 -
Production cost 13,00,000 10,00,000
Transportation, etc. 10,000 10,000
Sales charge 25,000 25,000
Base amount for tax calculation 13,35,000 10,35,000
VAT at 14%/ GST at 28% 1,86,900 2,89,800
Cess at 15% - 1,55,250
Price 15,21,900 14,45,050

Sedan

Particulars Pre- GST (Rs) Post- GST
Cost of manufacturing 8,00,000 8,00,000
Production cost 13,00,000 8,00,0000
Transportation, etc. 10,000 10,000
Sales charge 25,000 25,000
Base amount for tax calculation 10,51,000 8,35,000
VAT at 14%/ GST at 28% 1,47,140 2,33,800
Cess at 15% 1,25,250 -
Price 6,81,150 6,36,650

Under Goods and Services Tax, the cost of minuscule cars or hatchbacks reduces first due to the cumulative lower tax rates as shown in the above computation. In the above example, we have contemplated a scenario where the maker is directly selling the cars to the purchaser through his showroom.

Applicability of cess and GST on cars

Goods and Services Tax applies to almost all services and goods. This includes motorcars too, which includes cars. Goods and Services Tax & Services Tax rate on cars varies from Nil to 28 percent turn on upon its kind and its utilization. Apart from Goods and Services Tax, compensation cess applies to the sale of latest cars.

What is the value of supply to compute Goods and Services Tax & cess on cars?

(A) Value of supply: Under Goods and Services Tax, the value of supply is the cash that the retailer collects from the purchase in exchange for the sale of goods or services. In the case of related parties, Goods and Services Tax is charged on deal value. The deal value is the value at which separate parties would transact in the typical course of business.

For example, Mr. A purchases Hyundai Grand i10 for Rupees.6.5 lac from accessories and dealers. Then, Goods and Service Tax & cess are deliberate as follows:

  • Sale price: Rupees.6,50,000 (value of supply)
  • GST rate at 18 percent (comes under the category of small cars)
  • GST cess at 1 percent
  • Total value: Rupees.6,50,000 + Rs.1,23,500 = Rs.7,73,500
What is the Goods and Service Tax rate with the Harmonized System of Nomenclature (HSN) code on cars?

The Goods and Service Tax rate on cars turns on several factors such as fuel kind, length & engine dimensions. Harmonized System of Nomenclature (HSN) code for cars is covered under Chapter 87.