GST cut may soon make cars, bikes a lot cheaper
What's the story
The Indian government is considering a major reduction in the Goods and Services Tax (GST) on passenger vehicles (PVs) and two-wheelers. The move is aimed at making these vehicles more affordable for consumers. Currently, all PVs attract a GST of 28%, along with a compensation cess of 1% to 22%, depending on engine capacity, length, and body type. This takes the total tax payable to as high as 50%.
Tax breakdown
Current GST rates for electric cars and 2-wheelers
Electric cars are currently taxed at a lower rate of 5%, with no compensation cess. For two-wheelers, the GST is also 28%, but there is no compensation cess for models with an engine capacity of up to 350cc. Models with an engine capacity over 350cc attract a compensation cess of 3%.
Tax proposal
GoMs to meet to discuss tax structure revision
Later this week, three Groups of Ministers (GoMs) set up by the GST Council will meet to review a proposal from the Center to rationalize its tax structure. The revised tax structure proposes to keep 5% and 18% slabs while removing 12% and 28% slabs. This would benefit mass-market cars and two-wheelers, but some items like luxury cars could still be taxed at up to 40%.
GST reforms
Proposed GST reduction to benefit entry-level models
Prime Minister Narendra Modi had earlier announced major GST reforms in his 79th Independence Day speech. He said, "This Diwali, you, fellow countrymen, are going to get a very big gift." The proposed GST reduction is likely to benefit entry-level models in the PV and two-wheeler segments. These segments have been struggling due to high acquisition costs, rising interest rates, and cautious price-sensitive buyers.
Industry support
Auto industry leaders have long been advocating tax revisions
Maruti Suzuki India Chairman R C Bhargava has long been advocating tax revisions to boost demand for small cars. Hero MotoCorp Executive Chairman Pawan Munjal and Bajaj Auto MD and CEO Rajiv Bajaj have also supported a reduction in GST on two-wheelers from 28% to 18%. The proposed reduction would directly lower ex-showroom prices, especially for entry-level models where demand recovery has been slower.