The Goods and Services Tax (GST) in India applies to cars at various slab rates ranging from 5% to 28%. 
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The Goods and Services Tax (GST) in India applies to cars at various slab rates ranging from 5% to 28%. When purchasing a car in India, it is important to consider more than just the model you choose. Understanding the tax implications, particularly under the Goods and Services Tax (GST) system, is crucial. The GST rates on cars directly affect the total cost, making it essential to be aware of how these rates are designed.
SEBI-registered Research Analyst A K Mandhan, in a post on social media platform X, noted that buying a vehicle in India can be perceived as a significant financial burden due to the various taxes and additional costs involved. Upon earning money and paying taxes, consumers are faced with a 28% GST, 20% cess, and an average road tax ranging from 8-12%.
How much tax do I have to pay? Calculate now
He further noted that the pre-GST cost of a Thar car at Rs 11.65 lakh goes up to approximately Rs 19.60 lakh on the road, with a tax burden of Rs 7.95 lakh on a car valued at Rs 11.65 lakh.
This means that individuals from the middle class, driving a car worth Rs 8 lakh, end up paying similar prices for petrol or diesel as owners of luxury vehicles such as BMW or Mercedes. Additionally, the middle class also has to bear toll taxes, petrol and insurance expenses without receiving any corresponding benefits.
"Purchasing a car in India is the biggest scam. First u earn money and pay tax then. You pay 28% GST + 20% Cess. On top of that on an average 8-12% road tax.
Pre-GST cost of Thar car is 11.65 lakh and on road is around 19.60 lakh. There is a tax of Rs 7.95 lakh on a car worth Rs 11.65 lakh. A middle class driving a car worth Rs 8 lakh pays the same price for petrol/diesel as a BMW or Mercedes owner. Middle Class further pay toll tax, petrol and insurance without any benefits," Mandhan wrote on X.
The GST on cars in India is an indirect tax that is imposed on the manufacturing, sale, and consumption of vehicles. It has replaced a combination of previous taxes such as excise duty, VAT, and road tax. The GST on cars is determined by various factors, including the car's usage, fuel type, and classification.
Typically, cars are subject to tax rates of 5%, 12%, 18%, and 28%, with the majority of personal and commercial vehicles falling under the 28% category. Luxury models may also incur an additional cess, leading to a higher effective tax rate.
How to calculate GST on cars
To calculate the GST on vehicles, one must consider factors such as the type of vehicle, fuel type, and engine capacity. These elements determine the GST rate and any applicable cess. The formula for determining total tax on cars is as follows:
Total Tax = Ex-showroom Price × (GST Rate + Cess Rate)
Upon closer inspection, it can be observed that small cars such as the Tata Tiago or Maruti Suzuki have a pre-GST tax rate of 28%, which has now been reduced to 18% under the car GST rate. On the other hand, luxury cars like Renault Duster and Maruti Vitara Brezza are taxed at a rate of 45%, with GST on car purchases set at 28%.
In terms of fuel type, the tax rates for Sub-4-meter cars, specifically those with petrol engines like the Toyota Etios Liva, have also seen changes. The pre-GST rate for these vehicles was 31.5%, while the current GST rate on automobiles stands at 29%. These fluctuations in tax rates reflect the complexities within the automotive industry and highlight the importance of staying informed on regulatory changes.
For instance, let's take the case of a petrol small car (under 1200cc) with an ex-showroom price of Rs 5,50,000. With a GST rate of 28% and an additional cess of 1%, the total tax rate comes to 29%.
Therefore, the calculation for total tax would be:
Total Tax = Rs 5,50,000 × 29% = Rs 1,59,500
Ultimately, the final price would be:
Price after GST = Rs 5,50,000 + Rs 1,59,500 = Rs 7,09,500.
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