The Indian government proposes the main overwork of the tax structure from goods and services (GST), which will largely affect the automotive industry.
GST on cars – currently in the highest tax group 28 % – will be restructured to resolve classification disputes related to the capacity of the engine and the size of the vehicle, which eventually benefits the buyer, according to government sources known to PTI.
Current tax structure for vehicles?
Currently, most cars are taxed at 28 percent. In addition, compensation is applied from 1 to 22 % depending on the type of vehicle.
This leads to a wide range of total tax occurrences for cars, from only 29 % for small gasoline cars to 50 % for SUVs. This complex system has led to frequent classification disputes. On the other hand, electric vehicles (EV) are currently taxed by a much lower rate of 5 %.
The sources said that since the center proposed to move the GST system to a two -stage structure at a speed of 5 and 18 % and a 40 % board for several selected items, cars will also be placed on the board to end disputes resulting from car capacity classification according to engine and length.
What do these changes mean for car buyers?
The proposed changes are expected to increase demand and sale, as cars will be more accessible to average consumers.
The purpose of the new system makes the tax structure and potentially reduce the total tax burden on a wide range of vehicles and stimulates the consumption and strengthening of the economy as a key part of the government growth strategy.
The exact new GST for cars must be completed by the government.
Path forward for GST reforms
The design of the center, which includes the removal of 12 and 28 % of the album, will be discussed by a group of ministers (GOM) on rationalization of GST on 21 August 2025.
Currently, the GST structure of four boards is 5, 12, 18 and 28 %, where the basic items are taxed either by the NIL or the 5 % rate and luxury and sin goods are 28 % of the boards. The center proposed rationalization of GOM rates to have only 2 boards in GST – 5 and 18 % and a separate 40 % rate for only several selected goods.
Sources also said that 40 % of the rate would only apply to 5-7 goods, most likely in the category of luxury and sin.
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