Amid uncertainties regarding a reduction in the Goods and Services Tax (GST) on vehicles, especially for small cars and two-wheelers, the government has announced the dates for the upcoming GST Council meeting. According to an office memorandum from Revenue Secretary Arvind Shrivastava on Friday, the GST Council will hold its 56th meeting on September 3 and 4.
Since Prime Minister Narendra Modi announced that the government is reviewing the GST structure on August 15, and a relief can be expected by Diwali this year, there have been reports that there could be a sharp cut in the GST rates for vehicles, particularly for entry-level cars and two-wheelers from 28% to 18%.
The absence of any clear information on the potential new GST structure and its rollout date has resulted in uncertainty among consumers planning to buy new vehicles. This is because Indian consumers often postpone major purchases, like a new car or two-wheeler, when they anticipate that prices might drop in the near future.
The convening of the GST Council to decide on the new tax structure in early September is positive news for OEMs, vehicle dealers and consumers, as the festival season, when a bulk of automotive sales happens, starts next week with Ganesh Chaturthi and Onam. With this, there will be a much-needed clarity earlier than anticipated, as the meeting was previously expected to take place later in mid-September or even October.
Though Modi did not mention the automobile sector while announcing the review of the GST structure, various media reports say that there could be a sharp cut in the GST rates for vehicles as the government has reportedly proposed moving the GST system to a two-tier rate structure of 5% and 18%, and a 40% slab for a few items.
The current GST rates fall in four primary slabs – 5%, 12%, 18%, and 28%. ICE vehicles have a GST rate of 28% with an additional compensation cess, ranging from 1% to 22% depending on the type of vehicle. The tax on small petrol cars is around 29%, while it soars to 50% for large SUVs. This complex and varied system has resulted in disputes over vehicle classification.
A report from NDTV has said the government is proposing to overhaul the vehicle tax structure by shifting to a new categorization based on engine capacity instead of vehicle type. Under this framework, a single category would be reportedly created for small cars with engines under 1200cc.
A separate, higher-tax bracket would be applied to bigger cars with engines above 1200cc. If implemented, small cars could reportedly see their GST rate reduced to 18%, a significant drop from the current 28% plus cess.
Meanwhile, the compensation cess levy on certain “luxury and sin items,” including motor vehicles, is set to stop in March 2026. The cess was initially scheduled to end in June 2022, but was extended till March 2026. The cess was introduced to compensate states for the potential revenue losses in the first five years of the GST regime.
READ MORE: Uncertainty Around New GST Rates to Impact Vehicle Sales in Short Term