India’s automobile industry is a massive industry that produces a big number of automobiles and motorcycles each year, powered primarily by the country’s massive population. The GST absorbed the majority of indirect taxes. The purpose of this essay is to examine the GST’s applicability to the vehicle sector. Previously, used automobile sales were subject to VAT, and in some states, a composite rate and Excise/VAT were not levied on advance payments for goods supplied. Many states offered various investment-linked incentive programs to Original Equipment Manufacturers (OEMs)/component manufacturers. Subsidies and interest-free loans, as well as VAT/CST payable on the sale, were the two key components of this system. The sale of goods or services for no monetary payment was exempt from VAT and Service tax.
The CVD and excise duty paid by OEMs were not available to importers and dealers (Original Equipment Manufacturer). Excise duty had to be paid when items were transferred from the manufacturer, but there was no VAT/CST under earlier tax regulations. Electric vehicles, three-wheeled vehicles, hydrogen vehicles based on fuel cell technology, vehicles used solely as taxis, vehicles used by physically disabled people, and hospital ambulances are all free from the NCCD/auto cess.
Impact on Car Industry with GST
Reduced Operational Costs-The CST, or central state tax, that was imposed on interstate sales has been abolished. Automobile manufacturers no longer need to maintain many warehouses in various locations. They can join a number of different warehouses and benefit from reduced operational costs. Furthermore, taxes paid on advertising, promotions, and other overhead are included in the input credit tax, resulting in a further reduction in operational costs.
Working Capital Impact
Despite lower operational costs, the GST tax on autos has exacerbated dealers’ fears, and here’s why: Because the supply is taxed with GST, GST is cleared and capital is locked whenever a vehicle is transferred. The merchant must now pay the GST on the same day that the advance is received. However, in order to prevent damaging their outflow, dealers will be more cautious. Cash lock-on free services are another way that GST will affect sellers. As a customer perk, many automobile manufacturers offer free services or warranty cards at the time of purchase. Dealers will be required to pay GST at the time of issue, but customers can redeem these services at any time.
The table below compares the previous and current tax rates for each car segment based on the type of fuel:
|Car type||Engine type||Fuel tank capacity||Tax rate pre-GST||Tax rate post-GST||Difference|
|Sub 4-metre cars||Petrol||<1.2l||31.5%||29%||2.5%|
|Petrol, diesel||Petrol: More than 1.2l; Diesel: Less than 1.5l||44.7%||43%||1.7%|
|Larger than 4-metres SUVs||Petrol, diesel||Any capacity||55%||43%||12%|
|Larger than 4-metres non-SUVs||Petrol, diesel||Petrol: More than 1.2l; Diesel: More than 1.5l||51.6%||43%||8.6%|