The Indian government is set to overhaul the Goods and Services Tax (GST) structure, bringing significant relief to buyers of large SUVs and sedans. Currently, these vehicles face a hefty 50% tax rate, but a proposed revision could lower this to 40%, making them more affordable for consumers. This move is expected to reshape the automotive market, especially as the festive season approaches.
A Game-Changing Tax Cut
At present, premium SUVs and sedans are taxed at 28% GST with an additional 22% cess, totaling 50%. However, recent discussions in a ministerial panel indicate a shift toward a flat 40% GST rate without the extra cess. This change could lead to substantial price reductions, making high-end vehicles more accessible to a broader audience. While some states have suggested introducing a new cess alongside the 40% rate, government sources hint that the cess, initially introduced to offset state revenue losses during GST implementation, may be phased out entirely. Originally planned for five years, the cess was extended due to financial strains from the COVID-19 pandemic, but its removal now seems likely.
Impact on Vehicle Prices
The proposed tax reduction will have a more pronounced effect on large SUVs and sedans compared to smaller cars, which are also seeing a GST cut from 29% to 18%. The absolute savings on premium vehicles will be higher due to their elevated price points. For instance, a luxury SUV costing โน50 lakh could see a price drop of around โน5 lakh, significantly boosting its appeal. This aligns the pricing of internal combustion engine (ICE) vehiclesโpetrol, diesel, and hybridโcloser to electric vehicles (EVs), which are taxed at just 5%. While EVs have lower running costs, their higher upfront costs often deter buyers. Narrowing this price gap could make ICE vehicles a more attractive option for many.
Boosting Sales During the Festive Season
With the Diwali festive season on the horizon, automakers are poised to capitalize on this opportunity. Lower prices could drive showroom traffic and boost sales, particularly in the SUV segment, which has already overtaken small cars in popularity over recent years. Industry insiders expect manufacturers to pass on these tax benefits to consumers to stimulate demand, despite a history of reluctance to fully transfer such savings. The absence of an anti-profiteering clause means thereโs no legal obligation to lower prices, but market competition and the festive seasonโs sales potential may encourage companies to act.
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A Bright Future for the Auto Industry
The GST revision could reshape Indiaโs automotive landscape. The SUV segment, already a favorite among buyers, is likely to see even stronger demand with reduced prices. Meanwhile, the small car segment, bolstered by its own tax cut, may experience a revival. This dual boost could invigorate the industry, offering consumers more affordable options across vehicle categories. As the GST Council, led by Union Finance Minister Nirmala Sitharaman, prepares to finalize these changes next month, anticipation is high for a policy that could redefine car ownership in India.
