The Indian government is planning to reduce the GST rate on passenger vehicles from the current 28% to a lower slab, possibly to 18%, in an attempt to simplify the tax structure and boost consumer demand, which would eventually help the economy by increasing consumption. With this move, the small cars, which have traditionally been the backbone of the Indian passenger vehicle market but lately witnessed sluggish growth and a shrinking market share, are expected to see a route to revival.
What’s GST 2.0?
During his speech on August 15, Prime Minister Narendra Modi announced that the government is working on a restructured GST regime, which is now being dubbed as GST 2.0. Under this regime, the government is planning to simplify the tax structure with fewer slabs. The current GST regime has multiple slabs, including 5%, 12%, 18%, and 28%; while under the proposed tax structure, most of the items will be moved into just two main slabs – 5% for essential goods and services, while most other items will be moved to 18%. There will be a special 40% rate as well, which is proposed for luxury goods.
How would GST 2.0 benefit auto industry?
Under the GST 2.0, most of the small and medium-sized cars are expected to move to the 18% slab, which means the consumers will have to pay lower GST while buying these cars. However, the luxury cars would be taxed at a 40% rate. But, even with that, the luxury cars will see a lowered tax rate compared to the current regime.
The small petrol cars with up to 1,200 cc engine capacity and less than 4 metres in length currently attract 28% GST and 1% compensation cess. The small diesel cars with engine capacity of above 1,500 cc and less than 4 metres length draw 28% GST and 3% cess, resulting in a total tax incidence of 31%. The GST rate for all cars except the electric vehicles is 28%, but the cess rate varies and makes a difference in total tax incidence. The SUVs with an engine capacity of above 1,500 cc and a size of more than 4 metres in length are taxed at a whopping 50% rate, including 28% GST and 22% cess.
In a nutshell, the current GST regime for passenger vehicles is a bit complicated. With the GST rate revision, the government is aiming to simplify this, which is expected to bring down the total upfront cost of all the passenger vehicles in India, lower than what they are currently taxed at. The most benefited segment would be the small cars, which have traditionally been the backbone of the industry. The automakers believe that this would bring back many potential first-time car buyers to the market, who have been shying away from purchasing cars because of the affordability issue. The industry, struggling with sluggish sales, is expecting to see a major boost in sales with the GST 2.0.
Top 10 most popular cars may become cheaper with GST 2.0
While all the passenger vehicles are expected to benefit from the GST 2.0, here is a quick look at the most popular 10 cars in India that would become cheaper with the revised tax rate.
Maruti Suzuki Alto K10: The most affordable car in India and one of the only few remaining 1.0-litre petrol engine propelled hatchbacks. It is highly popular in both private and taxi segments owing to the low cost of ownership and practicality quotient. Alto K10 is expected to see a cost reduction with the revamped GST. It is expected to see a price drop from ₹4.23 lakh (ex-showroom) to approximately ₹3.89 lakh (ex-showroom).
Hyundai Grand i10 Nios: Hyundai Grand i10 comes as the entry-level hatchback for the South Korean automaker, but promises an upmarket vibe. With the GST 2.0, this 1.2-litre engine-powered small hatchback could become cheaper from ₹5.98 lakh (ex-showroom) to around ₹5.51 lakh (ex-showroom).
Maruti Suzuki S-Presso: Maruti Suzuki S-Presso has registered immense popularity among Indian car buyers, within a short span after its launch in the country. The small hatchback with a tall SUV stance is powered by a 1.0-litre peppy engine. The small and compact size, tried and tested engine make it a popular, affordable and practical car for many consumers in the country, in both private and taxi segments.
Tata Tiago: Tata Tiago is considered the safest entry-level hatchback in the Indian passenger vehicle market. The 1.2-litre engine propelled hatchback comes with a robust build quality, Global NCAP 4-star safety rating and a host of upmarket features. It is available in both petrol-only and petrol-CNG powertrains. With the GST reduction, the Tiago is expected to be available at a lower starting price of ₹5.15 lakh (ex-showroom) compared to ₹5.15 lakh (ex-showroom).
Renault Kwid: The direct competitor of Maruti Suzuki Alto K10, the Renault Kwid is the only hatchback from the French automaker in India. It was instrumental in giving Renault a strong footprint in the Indian passenger vehicle market. With the revamped GST rates, the Kwid could see an approximate reduction of ₹40,000 in its sticker price.
Tata Nexon: One of the bestselling sub-compact SUVs in India, the Tata Nexon is also considered a benchmark of safety in its segment. The SUV that is available with a wide range of powertrain choices is expected to see a major price reduction owing to the GST 2.0. However, it is to be seen in which tax bracket the SUV sits post the rate revision.
Hyundai Creta: Since its launch in the last decade, the Hyundai Creta has become the key revenue churner of the automaker in the Indian market. The stylish design, advanced technology-aided upmarket features, wide range of powertrain choices, and impressive performance play key roles behind its popularity. With the GST rate reduction, the Creta is expected to see significant benefits.
Mahindra Thar: The Mahindra Thar is often dubbed as the poor man’s Jeep Wrangler. The lifestyle SUV that is considered one of the true-blue off-roaders in India is expected to see a considerable amount of price reduction owing to the GST rate revision. However, the spectrum of cost reduction for the SUV is yet to be cleared as the government is yet to reveal the revised tax structure.
Mahindra Scorpio N: The Mahindra Scorpio N is the modern take on the Scorpio badge, which comes with an upmarket design and feature list, but retains the signature Scorpio vibe. Currently priced at a range of ₹13.99 lakh and ₹25.62 lakh (ex-showroom), the Scorpio N is expected to see about ₹3 lakh of price cut once the GST 2.0 regime is enforced.
Toyota Innova Crysta: The Toyota Innova Crysta is the key revenue churner for the Japanese auto giant in India. This large MPV is popular among private buyers as well as in the fleet segment. The comfort, premiumness on offer, and powerful powertrain choices make the Toyota Innova Crysta a highly popular car in the Indian market. With the GST rate revision, this MPV is expected to see a significant price reduction.
