GST rates on vehicles
The introduction of the Goods and Services Tax regime has streamlined taxation across various sectors including automobiles. In this regard, the GST rates for vehicles can vary based on the type and specifications of the vehicle. Below is a table showing the GST and applicable compensation cess rates for each vehicle category:
| Vehicle category | GST | Compensation cess | Total tax payable |
| Electric vehicles | 5% | NIL | 5% |
| Hydrogen fuel cell vehicles | 12% | NIL | 12% |
| Three-wheeled vehicles | 28% | NIL | 28% |
| Two wheelers up to 350cc engine | 28% | NIL | 28% |
| Two wheelers with >350cc engine | 28% | 3% | 31% |
| Passenger vehicles that run on petrol, CNG, and LPG of up to 4m in length and of up to 1200cc | 28% | 1% | 29% |
| Passenger vehicles that run on diesel of up to 4m in length and of up to 1500cc | 28% | 3% | 31% |
| Passenger vehicles with engine of up to 1500cc | 28% | 17% | 45% |
| Passenger vehicles with engine of over 1500cc | 28% | 20% | 48% |
| SUVs above 4m in length with engine over 1500cc and a ground clearance of over 170mm | 28% | 22% | 50% |
| Hybrid passenger vehicles of up to 4m length with up to 1200cc petrol or 1500cc diesel engine | 28% | NIL | 28% |
| Hybrid passenger vehicles of above 4m length or with 1200cc+ petrol or 1500cc + diesel engines | 28% | 15% | 43% |
| Public transport vehicles often around 10-13 seaters | 28% | 15% | 43% |
| Public transport vehicles with over 13 seaters and other commercial goods vehicles | 28% | NIL | 28% |
How is GST calculated on vehicles
The GST applicable on vehicles is calculated based on the ex-showroom price of the vehicle. This price includes the manufacturing cost, profit margins, and logistics but excludes the registration and insurance fees. The total GST amount is computed as a mix of the GST rate and a compensation cess, as applicable. It is important to check the GST state code applicable to your location to determine the exact tax rate for your vehicle purchase.
- Base price calculation: The ex-showroom price serves as the base for applying the GST and cess rates.
- GST rate application: GST is applied depending on the vehicle type and specifications. For example, electric vehicles attract a GST rate of 5%. While small petrol-engine vehicles come with a 28% GST and 1% cess fee.
- Compensation cess addition: For certain vehicles such as SUVs and large passenger vehicles, a compensation cess is usually added to the applicable GST rate.
It is recommended that you use a GST calculator for an accurate calculation of the applicable GST rate.
Input tax credit (ITC) on vehicles
Under the current GST regime, businesses can claim an input tax credit or ITC on vehicle purchases, subject to the below conditions:
- Eligibility for commercial use: ITC on vehicles is primarily available for businesses purchasing vehicles for commercial use, such as for transport services or goods transportation. To understand the documents required for GST registration, ensure you have the necessary paperwork to claim ITC effectively.
- Passenger vehicles limitation: For passenger vehicles, ITC can only be claimed if the vehicle is used for specific commercial activities such as renting, leasing, or providing driver training services.
- Documentation: Proper documentation, such as the tax invoice, GSTIN number, and PAN details, among others, is necessary to claim ITC seamlessly.
GST impact on vehicle leasing and financing
The application of GST has a huge impact on vehicle leasing and financing in India. Under the prevalent GST regulations, leased vehicles are taxed similarly to purchased vehicles. Here is how GST affects vehicle leasing and financing:
- Leasing services: For leased vehicles, GST applies to the leasing service itself. The GST rate on leasing services usually aligns with the GST rate for the vehicle category.
- Financing options: For those opting for vehicle loans, the GST does not apply to the loan amount but may impact related services such as processing fees and interest.
- Long-term cost efficiency: Leasing can be an effective solution for businesses that wish to claim ITC and avoid the full tax load of ownership.
When considering vehicle loans and other financing options, knowing the GST registration process can help businesses understand how GST applies to additional services like processing fees.
Conclusion
GST has greatly streamlined the applicable taxation on vehicles in India. This provides much-needed clarity on applicable taxes and the process of tax credits for business use. While personal vehicle buyers pay GST without input credits, businesses have avenues to reclaim some of these taxes through ITC. For those considering vehicle financing, understanding GST’s role is of paramount importance. For financing options, consider exploring a business loan that can support a vehicle acquisition with competitive terms.
