The Indian automotive industry has transformed a lot in the past two decades. The industry at first was dominated by hatchbacks, and then it showed a rapid shift towards SUVs and premium cars, too. But that never reduced the demand for small cars as it was preferred for most of the indian families and first-time buyers. However, the rising prices did affect the sales of small cars.
At present, the GST rate for small cars is 28% and not to forget the additional 1-3% compensation cess that increases the price further. This must have discouraged a lot of new buyers, and thus, sales of such cars have also seen a significant drop. To revive the market of small cars, the government is considering reducing GST to 18%.
Last week, Prime Minister Narendra Modi, while addressing the occasion of Independence Day, referred to “the next generation of GST reforms”. “We are bringing next-generation GST reforms. This will reduce the tax burden across the country.
This will be a gift ahead of Diwali”, said PM Narendra Modi in his Independence Day speech. During his speech, he hinted that as a pre-Diwali gift, the government is planning to reduce the tax for common-use items and “small cars”.
Now the question is which “small cars” will be considered for tax reduction. As per the officials, cars which has a length of less than 4 metres and an engine capacity of up to 1200 cc (petrol/ CNG/LPG) will be considered.
Similar cars measuring less than 4 metres and up to 1500 cc engine (diesel) will be considered. There is still no official news on whether the 1-3% compensation cess on small cars will be modified or remain the same.
The new GST reforms that are expected to be introduced before Diwali will position small cars in the 18% slab, and this step can significantly reduce the ex-showroom price by 12-13 percent. It is going to have a positive impact on customers, especially the Indian families or new buyers who mostly prefer small cars.
In the new GST reforms, the luxury cars and SUVs will not see a major change. They will be placed in the GST category of 40 percent. The original tax rate for EVs was the lowest, that is, 5 percent, and they will retain the same rate in the new GST reforms.
Small cars are more than just vehicles in India. The sentiments and emotions of Indian families are attached to them. It is because often these compact cars are the family’s biggest purchase, and the car goes through thick and thin across generations.
From daily commutes to occasional outings, the compact cars have been a true partner. GST reduction will not just reduce the price of the cars, but it will also increase the confidence of buyers to make their big purchase. It will bring positivity in the market, and we might see the sales of compact-sized cars go up again after almost five years of declining sales volume.