GST Rate Cut: Will Cars, Two-Wheelers get Price-Cut This Diwali?

At present, automobiles are placed in the highest GST slab of 28 percent. On top of this, a compensation cess ranging from 1 to 22 percent is applied, depending on the category of vehicle. This results in a total tax incidence between 29 percent for small petrol cars and nearly 50 percent for sport utility vehicles (SUVs). Electric vehicles are taxed separately at 5 percent.

Prime Minster, Narendra Modi during his Independence Day speech, said, "This Diwali, I am going to make it a double Diwali for you. This Diwali, you fellow countrymen are going to get a very big gift. In the last 8 years, we have done a big reform of GST, reduced the tax burden across the country, simplified the tax regime and after 8 years, the need of the hour is that we should review it once. We started the review by setting up a high-power committee and also held discussions with the states," said, PM Modi, in his Independence Day speech."

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According to multiple media reports, the Centre has proposed restructuring GST into two primary slabs of 5% and 18%, along with a 40% rate for a few selected goods. The proposal includes eliminating the current 12% and 28% slabs.

According to reports, the proposals under consideration for automobiles include:

• Two-Wheelers (below 350cc engine capacity): Rate cut from 28% to 18%
• Small Cars (below 1200cc engine capacity): Current 29–31% tax to be reduced to a flat 18%
• Hybrid Passenger Vehicles (up to 4m length & 1200cc petrol / 1500cc diesel engines): GST reduction from 28% to 18%
• Other Passenger Vehicles (large cars, luxury cars, SUVs): Likely to remain under a 40% slab

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As per multiple media reports, the proposal will be taken up by the Group of Ministers on GST rate rationalisation in their meeting on August 21. Following this, the GST Council, which includes finance ministers from both the Centre and states, is expected to meet next month to take a final call on the new GST structure. If the new structure is approved, it could make smaller cars and two-wheelers more affordable during the festive season, though the outcome will depend on the final decision of the Council.

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