Shares of Indian automakers soar as GST Council reduces tax
What's the story
Shares of Indian automakers witnessed a major spike on September 4. The surge came after the Goods and Services Tax (GST) Council approved a series of tax reforms. The Nifty Auto index also saw a major jump, hitting its highest point in nearly 11 months at around 26,612.20. The new GST rates are expected to significantly reduce ex-showroom prices for popular models like Maruti Swift, Hyundai i10, and Tata Punch by up to 7%.
Market impact
Major boost to sales of small cars
The GST Council's decision to reduce the tax rate on all small cars from 28% to 18% is expected to give a major boost to sales. This includes petrol or CNG cars with engine capacity up to 1,200cc and length up to 4,000mm. Diesel cars with similar specifications will also benefit from this reduction. Even small hybrids that qualify as small cars will be taxed at the new lower slab of 18%.
Tax adjustments
Larger hybrids moved to highest tax slab
However, larger petrol-electric and diesel-electric hybrids have been moved to the highest tax slab. Vehicles with engine capacity above 1,200cc (for petrol) or 1,500cc (for diesel), or length exceeding four meters will now attract a 40% GST rate instead of the previous 28%. Pure electric vehicles (EVs) continue to be taxed at just 5%, indicating the government's push for direct EV adoption.
Vehicle taxation
Removal of cess for premium vehicles
The removal of cess, which was previously levied over and above the GST, is likely to provide some relief for premium and luxury vehicles as well as hybrids. Cess ranging from 1% to 22% was charged over the 28% GST rate for different classes of vehicles. Now, this cess will no longer be applicable, making certain categories of large vehicles benefit from this move despite an increase in GST rate to 40%.
Additional benefits
Two-wheelers, tractors also benefit from new GST rates
Two-wheelers up to 350cc, three-wheelers, and ambulances will now be taxed at a lower 18% rate. On the other hand, motorcycles above 350cc will attract a higher GST of 40%. Shares of Mahindra & Mahindra (M&M) rose nearly 7% to trade at ₹3,505 apiece, while Eicher Motors, Tata Motors, and Maruti Suzuki shares gained over 2% each. Escorts Kubota shares rallied nearly 9% in early trading hours after GST on tractors was reduced to just 5%.