GST on Bikes and Two Wheeler

Introduced in 2017, the goods and services tax (GST) simplified and standardised the entire indirect taxation system of India. Except for a few exempt categories, GST is levied on all goods and services, including two-wheelers. 

If you are a prospective two-wheeler buyer, understanding the implications of GST on bikes is crucial since it influences the overall cost of the vehicle. In this article, we will delve into the concept of GST for bikes, explore the various bike GST rates, and understand its impact so that you can make informed choices.

GST on Two-Wheelers: An Overview  

Two-wheelers like scooters and motorcycles are the primary mode of transport in India. Considering that they play a significant role in daily commuting, the government decided to bring them into the ambit of the goods and services taxation regime. The levy of GST on two-wheelers ensures transparent and uniform taxation, simplifying the process for both manufacturers and consumers. 

The GST on two-wheelers is included as part of the vehicle’s ex-showroom price. This price also includes the cost of manufacturing, distribution margins, dealer commissions, and other expenses. Once GST is applied, additional charges like road tax, insurance, and registration fees further determine the vehicle’s on-road price.

Also Read More About GST on Cars

Rates of GST on Two-Wheelers

GST for bikes and scooters is applicable for both new and used vehicles. The rate of tax, however, is solely based on the engine capacity and not on the bike’s condition. Here is a table outlining the various scooter and bike GST rates. 

As you can see, the rate of GST on two-wheelers with conventional internal combustion engines is much higher compared to the rate applicable for electric vehicles (EVs). With the reduced GST rate of 5%, the government aims to make EVs more accessible, reduce dependence on fossil fuels, and address environmental concerns.

As a prospective buyer, you will also have to pay GST on two-wheeler insurance when purchasing a bike or scooter seeing as it is mandatory as per the Motor Vehicles Act. The rate of GST on two-wheeler insurance is currently 18%.     

GST on Bikes: An Example

To understand how GST for bikes impacts its prices, let us consider this hypothetical example. 

Assume you wish to purchase a 400cc motorcycle. The following is the cost break-up of the bike before the levy of GST. 

• Cost to the manufacturer – ₹1,80,000
• Transportation charges – ₹8,000
• Dealer’s commission – ₹20,000
• Total cost of the vehicle before GST – ₹2,08,000

Since the bike’s engine capacity exceeds 350cc, the rate of GST applicable to it would be 31%. The ex-showroom price of the vehicle would be as follows: 

Ex-showroom price = Total cost of the vehicle before GST + (Total cost of the vehicle before GST x 31%) Ex-showroom price = ₹2,08,000 + (₹2,08,000 x 31%) 

Ex-showroom price = ₹2,08,000 + ₹64,480 =₹2,72,480

To determine the on-road price, additional costs like road tax, insurance, and registration fees must be added to the ex-showroom price. Here is a breakdown of the additional costs. 

• Road tax – ₹12,680
• Registration fee – ₹10,000
• Insurance – ₹26,000 (inclusive of 18% GST on two-wheeler insurance, amounting to ₹4,000)
• Total additional costs – ₹48,680

Now, we can arrive at the final on-road price of the motorcycle by adding the above additional costs to its ex-showroom price. 

On-road price = Ex-showroom price + additional costs 

On-road price = ₹2,72,480 + ₹48,680

On-road price = ₹3,21,160

For a motorcycle costing ₹3,21,160 on-road, you would have paid a total GST of ₹68,480 (₹64,480 + ₹4,000). 

Input Tax Credit (ITC) on GST on Two-Wheelers

Input tax credit (ITC) is a unique mechanism under the goods and services tax regime that allows registered businesses to reduce their tax liability by setting off the GST they pay on inputs from the GST payable to the government.

However, when it comes to GST on bikes and scooters, the applicability of ITC depends on whether you satisfy any of the following conditions: 

• You use the two-wheeler to transport passengers or as public transport.
• You are not the end-user and intend to supply the two-wheelers further to other customers.
• You use the two-wheeler as a training vehicle to teach individuals.  

If you satisfy any of the above-mentioned conditions and are registered under the GST tax regime, you can claim the input tax credit on GST for bikes.

Impact of GST on Two-Wheelers

The levy of GST on bikes and scooters impacts the various stakeholders differently. 

For buyers, goods and services tax on two-wheelers adds transparency to pricing but also increases the cost, especially for vehicles with engine capacities exceeding 350cc. However, the reduced bike GST rates for electric vehicles make them an attractive alternative for cost-conscious and environmentally aware consumers. 

For the government, meanwhile, GST on two-wheelers ensures consistent revenue generation, considering the high level of demand for the vehicles. And finally, uniform bike GST rates ensure streamlined taxation for manufacturers. However, with high-capacity two-wheelers being taxed higher, manufacturers could face lower demand for the vehicles in this segment.  

Conclusion

As a prospective buyer, understanding GST on bikes is essential to make effective and informed purchase decisions. If you are looking to lower the impact of the two-wheeler purchases on your finances, opting for an electric vehicle could be the solution, especially if you have access to charging infrastructure. The lower bike GST rate on EVs can not only help you lower the cost of investment but also help you stay environmentally conscious. Furthermore, by opting for electric two-wheelers you may also be able to take advantage of state-level subsidies and lower operational costs. 

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