Influence of GST: Do cars become costlier?

Influence of GST: Do cars become costlier?

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GST has now arrived and is ready to be implemented on the stroke of midnight on June 30, 2017. People are worried whether there will be an increase in the car and bike prices due to implementation of GST. There are different costs which are involved in the purchase of car and bike for the end user. We will do a comparison of such costs prior and under GST.

Costs involved in purchasing a vehicle under current laws

Two. Registration charges

Trio. Motor insurance

Registration charges will be mostly neutral under GST. Major switches under GST would influence the cost of the vehicle and the motor insurance charges. VAT & service tax are charged presently on the cost of the vehicle. Different rates have been provided for different kind of vehicles.

All vehicles will be charged GST at the rate of twenty eight percent and specified cess for the vehicle. For bikes, which have an engine less than 350CC, no cess will be charged under GST as these are considered a necessity and not luxury. Puny cars, which have an engine of less than 1200CC, are also deemed necessity and, therefore, will only be charged cess at the rate of one percent over and above GST at the rate of twenty eight percent. It is a surprise that the yachts, aircraft, private jets and puny cars with an engine over 1200CC would be charged cess at the rate of three percent. Medium segment cars less than 1500CC, SUVs and bikes having engine of more than 350CC will be charged cess at the rate of fifteen percent. High-end hybrid cars like Mclaren P1, Porsche nine hundred eighteen Spyder, Laferrari would be charged cess at the rate of fifteen percent.

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Influence of GST Rate on Purchase Price

Puny cars are charged a similar rate of twenty eight percent as compared to the mentioned GST rates and prices of such cars are expected to reduce due to the input tax credit on services available to car manufacturers under GST. Mid segment cars are expected to be neutral as there are similar rates under both laws. SUVs and luxury cars are expected to get expensive due to costs associated with accessories despite the net tax charged under GST (43 percent) is less compared to the current net tax of 45-46 percent. Bikes like Harley Davidson, Suzuki Hayabusa might get costlier due to the three percent cess charged.

Insurance services are also adversely affected by introduction of GST as the rate has enhanced to eighteen percent from the current tax rate of fifteen percent. Motor insurance is a mandatory provision before the car or bike is sold to the end consumer. There will be an extra tax cargo of three percent on the end consumer at the time of purchase of the car or bike.

Free Supplies with Car or Bike

There are certain car accessories and free services suggested by the dealers on the purchase of car would become taxable under GST. Free services and accessories had no VAT or service tax charged on them at the current moment.

Rohan Motors suggested five free service coupons on the sale of car to Gaurav. Cost of the service from Rohan motors is Rs 4000. Then, there will be a tax liability of Rs seven hundred twenty at the rate of eighteen percent under GST on these free services and the final tax liability will be transferred to Gaurav.

It is expected the mid-segment cars like Honda city, Maruti swift and Hyundai i20 will be neutral under GST. The petite cars like Alto, Datsun go are likely to get cheaper under GST and luxury or SUV cars are to become expensive.

(The writer is CEO and Founder, ClearTax)

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