GST On Automobiles

Know About GST on Automobile Industry

The automobile industry has benefited positively from the introduction of GST. Before the GST era, there were a series of indirect costs and taxes attached to automobiles as every state had its own tax structure. Sales tax, road tax, sector tax, VAT, motor vehicle tax, etc., were all imposed. All of these have been subsumed in GST. In other words, with the introduction of GST and the unification of the taxes, automobile manufacturers/dealers now have to deal with only one indirect tax law. In this article, we have analysed the impact of GST on automobile spare parts industry.

Reduced Operational Costs

GST has brought about significant reductions in the cost of operations. Central State Tax (CST) which was previously applicable on interstate sales, is now eliminated. Because of this, manufacturers do not need multiple warehouses in different locations. They can enjoy low operating costs by renting out warehouses. On the other hand, all taxes paid on promotions, advertising, and other overheads are eligible for Input Tax Credit (ITC).

Affect On Working Capital

Whenever a vehicle is transferred, GST must be paid immediately as this supply is taxable under GST. The dealer has to pay the full amount of GST on the day they receive an advance.  Because of this, capital gets blocked. In some cases, dealers offer free after-sale services and warranties to attract buyers who may or may not utilise them in the future. However, these dealers have to remit the GST on these services to the Government. This can lead to a cash lock which will affect the working capital of the dealers. These free goods/services were not taxed under the previous tax laws.

Rate Of GST

While operation costs may have reduced, the GST applicable on automobiles has increased. Depending on the categorization and fuel type, GST on car parts are calculated.

2-Wheelers

2-Wheelers attract a GST of 28% and a cess of 3%. This means the consumer ends up paying 31% of the value as tax.

Commercial Vehicles

Most of the commercial vehicles attract 28% GST. However, minibuses fall under the 15% cess slab. This inflates the total tax applicable to 43%.

Luxury Cars

Luxury cars having engine capacity of more than 1500cc attract 28% GST and 15% cess. That means 43% of the value will be payable as tax.

Small Cars

The tax payable on small cars* hasn't changed as such. Previously, small car owners had to pay  29% as tax. Under the GST regime, these cars attract 28% GST and 1% cess thus making the total tax payable - 29%. *Here, small cars are those cars that have an engine capacity of less than 1200cc. However, for cars with an engine capacity between 1200-1500 cc, the GST rate is 28%, and the rate of cess is 3%. This makes the total tax payable equal to 31%.

Hybrid Cars

This section has been affected the most as the tax rate has increased to 28%, with an inflated 15% cess. Previously, hybrid cars were taxed at 30%.

Spare Parts

Automobile spare parts GST rates are now taxed at 28%. Previously, the rate of tax was 12%. Overall, there has been a positive impact of GST on the automobile sector. Even with the varied tax rates, the reduced costs of operations are undeniably influencing the final product's price.

 Utility Vehicles

At its 50th meeting, the GST Council voted to eliminate the differential rate of compensation cess and move all Utility Vehicles (UVs) into the 22 per cent cess category, an increase of 2 per cent. Sport utility vehicles (SUVs) and multi-utility vehicles (MUVs) will now be subject to the new tax bracket as a result of the ruling.

No matter what they are called—SUV, MUV, MPV, and so forth—the council has agreed to include all utility vehicles. No matter what the vehicle is called, according to the council, as long as it complies with certain requirements, it will be subject to a 22 per cent compensation cess in addition to a 28 per cent GST.

According to the update, a 22 per cent compensating cess would be added to the 28 per cent GST for any vehicles having a length greater than 4000mm, an engine displacement greater than 1.5 litres, and a ground clearance greater than 170mm.

Previously, the 22 per cent compensatory cess applied solely to Sport Utility Vehicles with a length over 4000 mm and an engine displacement over 1.5 litres. Now, any vehicle that satisfies the prerequisites listed before would be included in the pricing range.

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