GST Revision: Small Cars at 18%, Large Cars at 40% With No Cess

The government’s latest revision of GST slabs for automobiles is set to make both small and large cars more affordable. The move aims to boost demand, simplify taxation, and strengthen the auto industry.

GST Rate Cut on Small Cars

The government has slashed the GST on small cars from 28% to 18%, significantly lowering their on-road prices. This move is expected to make cars in the affordable segment more accessible, particularly to first-time buyers. Lower rates will also encourage wider adoption in tier-2 and tier-3 cities, where small cars dominate the market.

The expected sales boost will positively impact dealerships, service providers, drivers, and auto-finance companies, ensuring growth across the automobile value chain. The revised GST rate covers petrol cars under 1200 cc and less than 4 meters in length, as well as diesel cars under 1500 cc and within 4 meters.

GST Restructuring for Large Cars

For large cars, the GST rate has been rationalised to a flat 40% with no additional cess. This not only simplifies the taxation framework but also lowers the effective tax burden. While 40% remains a significant rate, the absence of a cess will make larger vehicles relatively more affordable for aspirational middle-class and premium buyers.

An important advantage of this revision is in input tax credit (ITC) eligibility. Earlier, ITC could only be used up to 28% and not for the cess component. With the cess eliminated, companies in the automobile sector will now be able to utilise ITC fully, improving operational efficiency and reducing overall costs.

Also Read: GST Rate Revised: Know Which Items Get Cheaper and Costlier, Electronics, Auto and Life Insurance!

Conclusion

The revised GST rates for both small and large cars strike a balance between affordability for buyers and efficiency for the industry. While small cars will gain traction among first-time users and smaller towns, large cars will see improved demand from aspirational buyers.

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