GST Impact on Car Prices and Service Costs

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Finally the day of dawn has arrived and India has embraced “One Country One Tax” the GST. GST has been anticipated to affect every aspect of life from food prices to automobiles. The consensus is that it’s unlikely to have much of an effect on the Consumer Price Index (CPI), simply because food constitutes about half the CPI and items such as fuel are also considered as heavy weight. Will the rise in prices affect demand and therefore growth? Services related to healthcare, education and transportation may not see a decline in demand despite increase in prices, say economists. But the god news is that automobile companies have already started to lower down their prices.

Under the GST regime automobiles have attracted the maximum slab of 28 percent with a cess in the range of 1 percent to 15 percent depending upon the fuel type and size of car. While small petrol cars with engine less than 1.2 litre will attract 1 percent cess, that with a diesel engine of less than 1.5 litre will attract 3 percent cess.

Large cars having engine greater than 1.5 litre and SUVs having length more than 4 metres and engine greater than 1.5 litre will attract cess of 15 percent over and above maximum rate of 28 percent.

Shockingly Hybrid vehicles will also fall in the category under GST. In comparison, tax on electric vehicles has been kept at lower slab of 12 percent. At present hybrid vehicles attract excise duty of 12.5 percent.

Here are the list of models on which prices have been slashed


The impact will be all the more on the middle and upper sections of society, who consume more services.

As per Motilal Oswal Securities Ltd report on GST dated 3 July, “Importantly though, while services comprise a very small share in Consumer Price Index, they account for almost 50% of the total consumption basket in the economy. Thus, while the impact of GST may not be visible in the official inflation measures, it will certainly pinch Indian consumers, as the share of services has been rising.”

So may be the prices of models have declined but the tax on services have increased from 15 percent to 18 percent making every trip to dealer expensive. Even the spare parts would be taxed at a higher rate of 28 percent.


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