GST on Cars
When we talk about GST, it is currently applying on every type of goods and services in India which also includes motor vehicles. Different GST slab rates being set for motor vehicles are 5%, 12%, 18%, and 28%. One of the most relevant rates of GST on cars applies to motor vehicles including those for commercial as well as personal use is 28%. The lowest GST rate on vehicles is 5% which applies to carriages for use by disabled people and related accessories.
However, GST is not the only tax applicable to motor vehicle sales, as a compensation cess of up to 22% may be levied on cars in addition to the 28% applicable GST. Thus, the maximum tax rate on cars after the GST introduction is as high as 50%.
What would be the GST on cars for personal use?
Vehicles for personal use include:
- Motor cars
- Motor Vehicles
- Bicycles
GST for all these ranging from 5% to 12%. One needs to keep in mind that GST for personal use is not limited to only vehicles but also applicable to the replacement parts or accessories for those vehicles. As we read above also that the lowest GST rate applies to vehicles is 5% which applies to carriages for use by disabled persons.
When the GST rate 12% applies to vehicle
- Vehicles that are driven by electric motors (including 2 and 3-wheeled vehicles).
- Vehicles are driven by fuel cells including hydrogen fuel cell technology.
Bicycles and other non-motorized cycles including delivery tricycles as well as
- Bicycles and other non-motorized cycles including delivery tricycles as well as their parts and accessories.
- Hand propelled vehicles such as rickshaws, hand carts, etc. as well as animal-drawn vehicles.
When the GST rate 18% applies to car and other vehicles
- Cars for physically handicapped people (subject to specific terms and conditions)
- Baby carriages and its replacement parts
When the GST rate 28% applies to car and other vehicles
- Motor vehicles (petrol or diesel) for the transport of people including racing cars and station wagons irrespective of size*.
- Motorcycles and mopeds with or without sidecars.
- Parts and accessories of motorcycles/moped including sidecars
*GST is applicable at 28% on cars for private use but the compensation Cess may vary based on key factors such as the size of the car’s engine and the length of the car. Such specification is in line with the Motor Vehicle Act, 1988.
Compensation Cess in the GST Act
Compensation Cess is a type of tax levied on certain goods along with the GST. Compensation Cess introduced as a part of the GST Act. Under the tax regime, Tax was collected by the producer states as there was interstate transfer of goods and services. As a name suggest, Compensation Cess designed to compensate producer (manufacturing states) foe the possible revenue losses under the GST regime in comparison to the VAT regime.
Compensation Cess is currently applicable to some key goods such as:
- Motor vehicles
- Aerated water
- Various types of solid fuel such as coal, briquettes, and other coal derivatives
- Tobacco and tobacco products including cigarettes (GST not yet applicable, VAT applicable)
As per the provisions of the GST Act, Compensation Cess not applies to Goods that are being exported from India to other countries. In such cases, if any Compensation Cess paid by the exporter then there is a refund back. Individuals or businesses that have opted for registration under the Composition scheme are not liable for paying any kind of Compensation Cess.
At present, the compensation Cess is set to be in effect till 1st July 2022 i.e. for 5 years after GST implementation on 1st July 2017.
GST Compensation Cess on Cars
At the time of the sale of vehicles, Compensation Cess is also applicable apart from GST on cars. Detail of applicable tax rates on vehicles for private use after considering the applicable Compensation Cess on GST is mentioned below:
| Type of Vehicle | GST Rate | Compensation Cess | Total Tax Payable |
Petrol/CNG/ LPG Car less than 12cc and length less than meters.
| 28%
| 1%
| 29%
|
Petrol /CNG/LPG car less than 12cc and length more than 4 meters
| 28%
| 15%
| 43%
|
Petrol /CNG/LPG car over 12cc (irrespective of length)
| 28%
| 22% | 50%
|
Diesel car less than 1500cc and length less than 4 meters
| 28%
| 3%
| 31%
|
Diesel car less than 1500cc and length more than 4 meters
| 28%
| 20%
| 48%
|
Diesel car over 1500cc engine capacity, greater than 4 meters length and ground clearance of 170mm or more
| 28%
| 22%
| 50% |
Electric cars (all sizes including two and three wheelers)
| 12% | NIL
| 12%
|
Vehicles fitted for use of ambulance
| 28%
| NIL
| 28% |
Three-wheeler motorized vehicles
| 28%
| NIL
| 28% |
Fuel cell vehicles including hydrogen fuel cell vehicles
| 12% | NIL
| 12%
|
Motorcycles/mopeds with engine capacity of up to 350cc
| 28%
| NIL
| 28% |
Motorcycles with Engine capacity more than 350cc
| 28%
| 3% | 31% |
The vehicle specifications are as per the Motor Vehicle Act, 1988. The rates are liable to periodic change and the list is not exhaustive.
As per the above list, diesel vehicles with larger engine capacities have the highest Compensation Cess as a result of the highest GST rates applies to them. Lower compensation Cess for cars with smaller engines and those driven by cleaner technologies such as electric/fuel cell features a lower rate of Compensation Cess.
GST on Commercial Vehicles
Commercial vehicles are designed for carrying passengers, goods or for using it for agricultural purposes. GST rate applies to such vehicles ranges from 12 to 28%.
Cases where 12% GST rate is applicable
- Tractors except road tractors for semi-trailers with engine capacity exceeding 1800cc.
- Self-loading/self-unloading trailers for agricultural purposes.
When GST on cars and other vehicles is applicable at 18%:
- Buses for use as public transport that exclusively operate on Biofuels.
- Refrigerated motor vehicles.
- Special purpose vehicles such as crane lorries, breakdown lorries, concrete-mixer lorries, etc.
- Self-propelled work trucks without handling/lifting equipment commonly used for transport of goods over short distances at airports, docks, factories, warehouses, etc.
- Various tractors parts including but not limited to gearbox assembly, axles, brake assembly, bumpers, clutch assembly, radiator assembly, etc.
The 28% rate of GST on cars and other vehicles for commercial use is applicable in the following cases:
- Road tractors for semi-trailers with engine capacity over 1800cc.
- Motor vehicles for the transport of 10 people or more (excluding biofuel- powered public transport buses).
- Motor vehicle for transport of goods (excluding refrigerated motor vehicles).
- Various motor vehicle parts and accessories (excluding various tractor parts).
Note: The above list is indicative. Access the full list with applicable GST rates here
GST Compensation Cess of 15% applies to over and above applicable GST to commercial vehicles capable of transporting up to 13 people including the driver. This compensation Cess is in addition to the GST applicable to the specific vehicle type.
GST on Used Cars
Previously second-hand cars are applicable for the same GST rate and Compensation Cess which applies to new vehicles. To boost the used car market, GST rates were subsequently brought down of the second-hand cars. The currently applicable rates include 12% for smaller pre-owned vehicles i.e. petrol cars of the engine capacity up to 1200cc and diesel cars of engine capacity up to 1500cc. The applicable rate of GST on used cars with engine capacity exceeding 1200cc for petrol and 1500cc for diesel cars is now 18%.
By lowering the GST rates of used cars as compared to earlier when it was 28% brought the most significant change. As on 25th January, Compensation Cess for all used cars irrespective of size was revised to nil, in case no Input Tax benefit has been claimed under CENVAT credit or in place of any other taxes paid.
The following is a representative list of taxes applicable to used car sales in India after implementation of GST on car (pre-owned) sales*:
| Type of Used Car | GST on used Vehicle | Compensation Cess | Total Applicable Tax |
Petrol car with engine capacity up to 1200cc
| 12% | NIL | 12%
|
Petrol car with engine capacity over 1200cc
| 18% | NIL
| 18%
|
Diesel car with engine capacity up to 1500cc
| 12% | NIL
| 12%
|
Diesel car with engine capacity over 1500cc
| 18% | NIL
| 18%
|
GST rate on Electric Vehicles
All Electric Vehicles and their key accessories such as EV Chargers and EV charging stations featured a GST rate of 18%. But after the 36th GST Council meeting held on 27th July 2019; it reduced the GST rate on electric vehicles to 5%.
The same 5% GST rate is also applicable to EV Chargers and charging stations as announced in the 36th GST council meeting. The new GST rate for electric vehicles (both for private and commercial use) is effective from August 01, 2019.
