Goods and Services Tax (GST) currently applies to most goods and services in India including motor vehicles. GST on cars in India is applicable across multiple slab rates of 5%, 12%, 18% and 28%. The most relevant GST rate on cars is 28% that applies to motor vehicles including those for personal as well as commercial use. The lowest GST rate on vehicles of 5% 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% GST that is applicable. Thus the maximum taxc rate on cars after GST introduction is as high as 50%.
GST on Cars for Personal Use
Vehicles for personal use such as motor cars, motor vehicles and even bicycles feature GST ranging from 5% to 12%. The GST on vehicles for personal use is not only applicable to the vehicles itself but also on the accessories/ replacement parts for those vehicles. The lowest GST rate applicable to vehicles is 5% which is applicable to carriages (motorized/non-motorized) for use by disabled persons. The same 5% GST rate also applies to parts/accessories of carriages for use by disabled people. This lower rate was introduced at the 31st GST Council Meeting held in December 2018. The following are some key instances where GST rate on vehicles is 12%:
- Vehicles that are driven by electric motors (including 2 and 3 wheel vehicles)
- Vehicles driven by fuel cells including hydrogen fuel cell technology
- 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
The following are some key instances of 18% GST on cars and other vehicles
- Cars for physically handicapped people (subject to specific terms and conditions)
- Baby carriages and its replacement parts
28% GST on cars and other vehicles is applicable in the following cases:
- 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 differ based on key factors such as the size of the car’s engine and the length of the car. Such specification are in line with the Motor Vehicle Act, 1988.
Note: The above list is indicative. To know about GST rates applicable to other types of vehicles/vehicle parts and accessories you can use Paisabazaar’s GST Rate finder and HSN/SAC Code Finder tool
Compensation Cess in GST Act
Compensation cess is a type of charge levied on certain goods in addition to the applicable GST and it was introduced as part of the GST Act. Under the VAT regime, tax was collected by the producer states in case there was interstate transfer of goods/services. Compensation cess, as the name suggests, is designed to compensate producer (manufacturing) states for possible revenue losses under the GST regime (as compared 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, ovoids and other coal derivatives
- Tobacco and tobacco products including cigarettes (GST not yet applicable, VAT applicable)
Under current provisions of GST Act, compensation cess is not applicable to goods exported from India to other countries. In such cases, any compensation cess paid by the exporter will be refunded. Individuals/businesses that have opted for registration under the composition scheme are also not liable to pay compensation cess. At present, the compensation cess is set to be in effect till 1st July 2022 i.e. for 5 years subsequent to GST implementation on 1st July 2017.
GST Compensation Cess on Cars
At the time of vehicle sales, a compensation cess is applicable in addition to the GST on cars. The following is a table showing the applicable tax rates on vehicles for private use after taking into account the applicable compensation cess and GST*:
|Type of Vehicle||GST Rate||Compensation Cess||Total Tax Payable|
|Petrol/CNG/LPG car less than 1200cc and length less than 4 meters||28%||1%||29%|
|Petrol/CNG/LPG car less than 1200cc and length more than 4 meters||28%||15%||43%|
|Petrol/CNG/LPG car over 1200cc (irrespective of length)||28%||22%||43%|
|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 2 and 3 wheelers)||12%||Nil||12%|
|Vehicles fitted for use as an 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 greater than 350cc||28%||3%||31%|
*The vehicle specifications are as per the Motor Vehicle Act, 1988. The rates are liable to periodic change and list is not exhaustive.
From the above list it is clear that diesel vehicles with large engine capacities have the highest compensation cess and by extension the highest tax rates applicable to them. Simultaneously, cars with smaller engines and those driven by cleaner technologies such as electric/fuel cell feature a lower rate of compensation cess.
GST on Commercial Vehicles
Commercial vehicles such as those designed for carrying passengers, goods or for agricultural use typically feature a GST rate ranging from 12% to 28%. The following are some key cases where 12% GST is applicable:
- Tractors except road tractors for semi-trailers with engine capacity exceeding 1800cc
- Self-loading/self-unloading trailers for agricultural purposes
The following are some key examples where GST on cars and other vehicles is applicable at 18%:
- Buses for use as public transport that exclusively operate on Bio-fuels
- 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 in excess of 1800cc
- Motor vehicles for transport of 10 people or more (excluding bio-fuel 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% is also applicable 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
Originally used cars featured the same rate of GST as well as compensation cess as applicable to new vehicles. However the rates were subsequently brought down in order to boost the used car market. The currently applicable rates include 12% for smaller pre-owned vehicles i.e. petrol cars of 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%.
While lower GST rates compared to the earlier 28% have definitely helped, the most significant change has been the revision of rates applicable to compensation cess. As of 25th January 2018, 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 lieu 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%|
*The above list is indicative and subject to periodic change.