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The proposed overhaul of the Goods and Services Tax (GST) regime is likely to bring relief to those looking to buy cars, especially smaller cars, with the government looking at creating a distinction in tax rates for smaller and bigger cars. Small cars, which currently attract 28 per cent GST plus small cess rates of 1-3 per cent, could get moved into the 18 per cent bracket in the new dispensation, government sources said. Bigger luxury cars and SUVs are likely to be shifted into the special rate category of 40 per cent after the removal of the 28 per cent slab, they said.
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“Small cars are not luxury items or demerit goods. Only 5-7 items are going to be retained in the 40 per cent slab,” a government source told The Indian Express.
The benefits are also expected to accrue for entry-level motorcycles. GST on 350 cc bikes is 28 per cent at present, which may be brought down to 18 per cent, while bikes with an engine capacity of more than 350 cc may get charged the higher rate. At present, bikes with engine capacity of over 350 cc attract a GST rate of 28 per cent along with a cess of 3 per cent, taking the total tax levy to 31 per cent.
Among cars, smaller cars, including entry level hatchbacks, small sedans and mini-SUVs attract 28 per cent GST along with cess rates of 1 per cent or 3 per cent at present. For instance, small cars with engine capacity up to 1200 cc and less than 4 metres in length figure in the highest slab rate of 28 per cent and face a cess of 1 per cent (petrol) and 3 per cent (diesel).
In fact, mid-sized cars are also likely to see a slight reduction in their tax incidence as the maximum rate in the new GST system is proposed to be 40 per cent. Currently, mid-sized cars, with engine capacity above 1200 cc (petrol) or 1500 cc (diesel), attract a cess rate of 15 per cent over and above the 28 per cent slab rate, implying total tax rate of 43 per cent. This is likely to come down to 40 per cent.
Luxury cars with engine capacity above 1500 cc and SUVs with bigger engine capacity, and over 4 metres in length, that currently face 20 per cent and 22 per cent cess rates, respectively, over and above the 28 per cent GST rate, may, however, see an additional levy to keep the tax incidence same as now.
Industry sources said that car manufacturers are likely to look at pushing cars having less than 1200 cc engine capacity in the market to benefit from the cost advantage from reduction in the GST rate to 18 per cent from 28 per cent. “The discussions have begun since the announcement of the proposed GST overhaul. If they have to bring out cars under the new tax structure six months down the line, the planning has to start now,” an industry source said.
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The automobile market has been witnessing a sharp uptrend in favour of premium models at the mid-level segment and above, instead of smaller ones. An entry-level car costs nearly four times a scooter or motorcycle, acting as a drag on the segment. The reduction in tax rates could boost the small cars industry amid dwindling sales at the entry level.
© The Indian Express Pvt Ltd
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