The central government is planning a big change in GST. The aim is to make the tax system simple and lower taxes on common items. Prime Minister Narendra Modi talked about this in his Independence Day speech last month. He suggested changing the current four-tier GST system to a two-tier system. This change will affect about 175 products, including cars. The GST Council, led by Finance Minister Nirmala Sitharaman and including ministers from all states, will meet on September 3-4 to finalize the new GST system. Let us see how car prices may change if GST on vehicles is cut from 28% to 18%.
Small Cars May Get Cheaper
Cars can have different tax rates. Entry-level cars may have 18% tax, while SUVs and luxury cars may have 40% tax. The extra cess of 1-3% on these cars may also be removed. This can reduce the total tax on small petrol and diesel cars by 11-13%. Hybrid cars may get a 10% tax cut because there is no cess on them now.
Tax on Electric Cars
The GST Council will also talk about taxes on electric cars (EVs). Some state ministers want 18% GST on EVs costing up to Rs 40 lakh. The central government wants 5% tax to encourage people to buy EVs.
Luxury Cars May Get More Expensive
Cars costing more than Rs 40 lakh may have higher GST. Luxury EVs like Mercedes, BMW, and Tesla may become more expensive. These cars mostly serve rich people and are mostly imported. Because of the expected changes, buyers are waiting for lower prices, and sales are slowing. Experts say that when the new rules come, cheaper small cars will boost demand and help the economy.