A guide to the tax impacts of 2024

India introduced GST in 2017, which had a huge impact on the automotive industry. The selling price of a new car has changed dramatically. GST is a single indirect tax that replaced multiple taxes such as excise duty, value-added tax and central sales tax, simplifying the tax structure and directly affecting the final cost of a vehicle.

Understanding Goods and Services Tax (GST)

Before discussing the impact of GST on the price of new cars, let’s first have a brief understanding of what GST is. GST refers to the consumption tax levied on the supply of goods and services in India. Goods and services have a floating tax rate under GST. This depends on the type of goods and services. In the case of car prices, it depends on many factors. Such as the engine capacity, length of the car, and the type of fuel used.

Also read: The Ultimate Guide: Buying a New Car

2024 GST rates for automobiles

What is Cess?

Surtax is an additional tax levied on certain goods and services, which is not included in the GST rate. In the case of cars, the surtax depends on the engine capacity of the vehicle. It is important to note that the rates of the surtax change frequently. People need to check the latest announcements and tax law changes released by the government to stay up to date.

Impact of GST on car prices

1. Smarter tax structures: Unlike before, when the cumbersome tax framework made it difficult to gauge the correct cost of a car at the final stage, under GST, this is now much easier. It allows consumers to compare prices and understand the total cost of ownership.
2. Reduced tax rates: The combined GST rate for most car models is lower than previously expected. This means new car prices are lower, easing the relatively high prices borne by consumers.
3. Increasing competition: The relaxation of tax incentives has led to more competition among automakers, resulting in more reasonable prices and better deals for consumers.
4. The impact of different models varies: The impact of GST on different car categories varies. Prices of small and mid-size cars have fallen sharply, but the impact on luxury cars is minimal as they are levied at higher rates of GST and surcharge.
5. Impact on electric vehicles: The government has provided incentives for electric vehicles by reducing GST rates and other subsidies. As a result, electric vehicles have now become more affordable and attractive to consumers.

Impact of GST on Maintenance Costs

Impact on spare parts

1. Consumption tax rate: Spare parts used to repair your car are subject to GST. The rate depends on the type of spare part. It is usually within the standard GST rate range.
2. Price increase: In general, the prices of spare parts have increased slightly after the implementation of GST. This is because the GST rate on spare parts is usually higher than the previous combined VAT and GST rate.
3. Uniformity: GST brings the same degree of uniformity in pricing across states as the same tax rate applies across the country. This helps avoid price variations due to regional tax differences.

Impact on services

1. Service consumption tax: Car repairs, maintenance, painting, etc. are also subject to GST. The tax rate may also vary depending on the nature of the service and the location where the service is provided.
2. Costs more: Sometimes, the overall cost will be higher because GST is included in the fee, especially for major repairs or when heavy-duty repairs are required.
3. Bundle: In case of bundling of services, some service providers will bundle multiple services together and apply a single GST rate on the entire bundle. This can actually save consumers some money.

Also read: Car loan interest rates explained

in conclusion

In simple terms, new cars have become quite affordable by 2024, thanks to GST which has reduced the overall tax burden and simplified the overall tax system. No doubt, other factors will also affect the price of a car. But GST is a significant factor in determining the final price of a car. As the automotive industry is constantly changing, it will be interesting to see how GST and many other factors will affect the final price of a new car in the coming years.