Auto Industry GST Slabs: Benefits for First-Time Buyers and Middle-Income Families as Sector Seeks Cess Clarity
The automobile industry has expressed strong approval of the GST Council’s recent decision to lower tax rates on vehicles, a move anticipated to stimulate demand and enhance affordability for consumers. Effective from September 22, coinciding with the start of the Navaratri festival, the new two-tier tax structure simplifies rates to 5% and 18%. Industry leaders believe this change will particularly benefit first-time buyers and middle-income families, urging the government to provide clarity on the compensation cess for unsold vehicles to ensure a smooth transition.
Industry Response to Tax Reduction
The Society of Indian Automobile Manufacturers (SIAM) has welcomed the reduction of the Goods and Services Tax (GST) on vehicles to 18% and 40%. SIAM President Shailesh Chandra highlighted that this decision is a timely boost for consumers and the automotive sector. He emphasized that making vehicles more affordable, especially in the entry-level segment, will significantly benefit first-time buyers and middle-income families. Chandra expressed optimism that this initiative will enhance access to personal mobility across the country.
C S Vigneshwar, President of the Federation of Automobile Dealersโ Associations (FADA), described the tax changes as โbold and progressive reforms.โ He noted that the simplified tax structure fosters consensus among states, which is crucial for the industry. Vigneshwar stated that this decisive step will not only enhance affordability but also stimulate demand, thereby strengthening India’s mobility ecosystem. As the festive season approaches, he stressed the importance of seamless implementation to ensure that the benefits reach consumers without any hitches.
Impact on Vehicle Pricing
Under the revised tax structure, various vehicles will see significant changes in their tax rates. Petrol, LPG, and CNG vehicles with engines up to 1,200 cc and under 4,000 mm in length, as well as diesel vehicles up to 1,500 cc and 4,000 mm, will now be taxed at 18%, a reduction from the previous rate of 28% plus cess. Additionally, motorcycles with engine capacities up to 350 cc will also benefit from the lower 18% tax rate instead of 28%.
However, larger vehicles, including those with engines above 1,200 cc and longer than 4,000 mm, along with motorcycles exceeding 350 cc and racing cars, will incur a higher levy of 40%. Small hybrid cars will enjoy reduced rates, while electric vehicles will continue to be taxed at the favorable 5% rate. This restructuring aims to make a wider range of vehicles more accessible to consumers, particularly during the festive season when demand typically surges.
Future Considerations and Government Clarity
Industry leaders are calling for swift government action to clarify rules regarding the compensation cess on unsold vehicles. Chandra pointed out that resolving classification issues and addressing the inverted duty structure will streamline business processes and enhance the ease of doing business in the automotive sector. He expressed confidence that the government would soon announce suitable mechanisms for utilizing the compensation cess on unsold vehicles, ensuring a smooth transition for the industry.
Vigneshwar echoed these sentiments, emphasizing the need for clarity on the treatment of cess balances currently held by dealers. He stressed that addressing these concerns promptly will prevent any ambiguity during the transition period. As the automotive industry prepares for the upcoming festive season, the focus remains on ensuring that the benefits of the tax reductions are effectively communicated and implemented to maximize their impact on consumers.
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