In India, buying a car goes beyond just selecting a model; it also involves understanding the tax implications, especially under the Goods and Services Tax (GST) system. GST on cars has a direct impact on the overall cost, and it’s essential to know how these rates are structured.
The car GST rate varies, primarily falling into the 28% bracket for most vehicles, with additional cess charges that can drive the effective tax rate up to 50% for luxury and high-end models. For specialised vehicles, like wheelchair-accessible ones, the GST rate drops to a minimal 5%.
Whether you’re planning to buy a personal vehicle or a commercial one, knowing the exact car sale GST and how it influences prices can help you make more informed decisions. Let’s begin by understanding the basics of GST on cars.
What Is GST on Cars?
Goods and Services Tax (GST) on cars is an indirect tax applied to the manufacturing, sale, and consumption of vehicles in India, replacing a mix of former taxes like excise duty, VAT, and road tax. The GST on cars varies based on several factors, including the car’s use, fuel type, and classification.
Generally, cars fall under tax rates of 5%, 12%, 18%, and 28%, with most personal and commercial vehicles taxed at 28%. Additionally, a cess may apply to luxury models, raising the effective tax rate. The streamlined GST system, implemented on 1st July 2017, aims to reduce complexity, enhance transparency, and potentially lower car costs, while supporting consistent government revenue.
Car GST Rate List in India
| Type of Vehicle | GST Rate | Additional Cess | Total Tax Rate |
| SUVs (Length > 4m, Ground Clearance > 170mm) | 28% | 22% | 50% |
| Luxury Cars (Length > 4m, >1500cc) | 28% | 20% | 48% |
| Mid-Sized Cars (Petrol/Diesel, Length > 4m) | 28% | 15% | 43% |
| Small Cars (Diesel, <1500cc, Length < 4m) | 28% | 3% | 31% |
| Small Cars (Petrol, <1200cc, Length < 4m) | 28% | 1% | 29% |
| Ambulances | 12% | 0% | 12% |
| Hybrid Cars | 28% | 15% | 43% |
| Electric Vehicles | 5% | 0% | 5% |
NOTE: The list above is subject to change based on regulatory updates and is determined by the vehicle’s size and fuel type.
Impact of GST on the Indian Automobile Industry
The introduction of GST has had a profound impact on the automobile industry, benefiting various stakeholders, including end consumers, car dealers, and manufacturers.
- End consumers
The implementation of GST has led to a significant reduction in tax rates on motor vehicles compared to the previous tax system. This has resulted in lower overall costs for consumers when purchasing cars, making them more affordable than before.
- Car dealers
Car dealers have also experienced a positive shift with the implementation of GST. Prior to its introduction, dealers struggled with the complexities of VAT and excise duties, which often created challenges in managing tax credits. However, under the new GST framework, car dealers can now claim input tax credits on the tax paid during car purchases. This simplification of the tax process has made it easier for dealers to manage their operations, improving cash flow and profitability.
- Manufacturers
The automobile sector has benefited greatly from GST, as it has reduced the overall cost of manufacturing. The previous system involved multiple layers of taxation, leading to cascading taxes that increased production costs. With GST, manufacturers can avail of tax credits on raw materials and components, streamlining the production process and reducing costs. This has enhanced efficiency in the manufacturing sector, benefiting the entire supply chain.
Also Read More About GST on Mobile Phones
How GST is Calculated on Vehicles?
Calculating GST on cars depends on the vehicle type, fuel type, and engine capacity, as these factors determine the GST rate and applicable cess. Here’s how GST is calculated on cars:
Formula: Total Tax = Ex-showroom Price × (GST Rate + Cess Rate)
For example, consider a petrol small car (under 1200cc) with an ex-showroom price of ₹5,50,000. The GST rate is 28%, with an additional cess of 1%, resulting in a total tax rate of 29%.
Calculation:Total Tax = ₹5,50,000 × 29% = ₹1,59,500
Final Price = ₹5,50,000 + ₹1,59,500 = ₹7,09,500
Exemptions for GST on Cars
While GST applies to most cars, there are notable exemptions and concessional rates for specific vehicle types. One of the significant exemptions applies to electric vehicles (EVs), which are subject to a reduced GST rate of 5%. This concession is intended to promote the adoption of environmentally friendly transportation.
Additionally, ambulances benefit from a lower car GST percentage of 12%, a move that supports the healthcare sector by reducing costs for essential medical transport. Vehicles specifically modified for physically challenged persons may also be eligible for GST exemptions, provided they meet government-set criteria.
These concessions demonstrate the government’s intent to use GST as a tool for encouraging sustainable transportation and supporting critical sectors like healthcare.
GST on Used and Second-Hand Cars
For dealers dealing in used cars, GST is calculated on the difference between the buying price and selling price, effectively reducing the tax burden. This provision ensures that if the transaction margin is negative, dealers are exempt from paying GST on car sales. This exemption simplifies the taxation process for second-hand vehicles and encourages a smoother resale market.
Additionally, individuals purchasing used cars from unlisted or unregistered sellers are exempt from paying GST on the transaction, providing relief to buyers in the pre-owned vehicle market.
Conclusion
Understanding GST on cars, including car GST percentages and the car GST rate list, is crucial for consumers and industry stakeholders. The unified GST system has streamlined tax calculations, making the process simpler and more transparent.
The GST Council continues to review and adjust car GST rates and policies based on market needs and economic conditions. As the government focuses on boosting electric vehicle adoption, further concessions may be introduced, influencing car GST rate lists in the future.
FAQs
What is the minimum GST rate applied to cars in India?
The minimum GST rate applied to cars in India is 5%, though this typically applies to specific vehicle types. Most other categories, however, have higher rates depending on factors like engine size and fuel type.
What factors determine the GST rate on cars in India?
The GST rate on cars varies based on several factors, including the type of fuel (petrol, diesel, or electric), the vehicle’s engine capacity, and its purpose or segment (such as compact cars, SUVs, or luxury vehicles). These criteria ensure GST is applied fairly across different car categories.
Can GST paid on car purchases be refunded?
No, the GST paid on car purchases cannot be refunded. According to Section 17-5 of the Central Goods and Services Tax (CGST) Act, GST on cars is not eligible for a refund, whether purchased for personal or business use.
What are the exceptions for Input Tax Credit (ITC) on GST paid for cars?
The Input Tax Credit (ITC) on GST for cars is restricted, with few exceptions. ITC is allowed only when the vehicle is an essential part of the supply chain, such as in transportation or logistics, or when the car is used for specific business purposes that meet ITC criteria.
Are electric vehicles taxed at the same rate as other cars?
No, electric vehicles are subject to a lower GST rate of 5% to encourage eco-friendly transportation. This reduced rate is a government incentive to promote cleaner energy and reduce emissions in the automobile sector.
Can second-hand car dealers claim GST refunds or benefits?
Second-hand car dealers can benefit from a different GST calculation. The GST is applied only on the margin between the buying and selling price, effectively reducing the GST burden for these dealers. However, no direct GST refund is applicable on second-hand car transactions.
