How GST 2.0 makes even big and luxury cars cheaper
What's the story
India's automobile market is set for a major change as the new Goods and Services Tax (GST) 2.0 comes into effect, making small, big, and even luxury cars more affordable. Under the revised structure, small cars with engines up to 1,200cc will now attract an 18% GST rate, reduced from the earlier 28%. For premium and luxury cars, a uniform 40% slab has been introduced, effectively replacing the steep compensation cess currently imposed.
Tax simplification
Under 40% slab, no additional cess can be levied
The new GST 2.0 regime has simplified the tax structure by introducing just four slabs - 0%, 5%, 18%, and a flat 40%. This means that once an item falls under the 40% slab, no additional cess or surcharge can be levied. Previously, large cars and SUVs were subject to a 28% GST plus a significant compensation cess, which could be as high as 22%. This resulted in a total tax burden of up to 50%.
Market impact
Premium sedans and SUVs to see price drop
The introduction of GST 2.0 is a major shift for the automobile sector, which has been hampered by high taxes on larger vehicles. Analysts expect carmakers to adjust their pricing strategies in the coming weeks, making premium sedans and SUVs more affordable. Along with entry-level cars, the reform also brings smaller vehicles such as motorcycles under 350cc, three-wheelers, busses and trucks under the 18% slab.
Market revival
Broader impact on automobile market
The GST 2.0 overhaul is expected to give a major boost to the automobile market, with both ends of the spectrum - from budget bikes to luxury SUVs - benefitting from it. Industry watchers believe this could lead to a broad-based revival in demand, especially ahead of the festive season. The reform is part of a larger effort by the government to simplify taxation and make vehicles more affordable for consumers across all segments.