Early Arrival of Festival: Reduced GST Leads to Lowered Prices on Hatchbacks
The Indian automobile industry is set for a significant change with the implementation of GST 2.0, which promises to reduce taxes on small cars. This move is expected to benefit manufacturers like Maruti Suzuki, Hyundai, Tata Motors, and others, as their small car models such as Alto K10, S-Presso, WagonR, Swift, Dzire, Grand i10 Nios, i20, Tiago, Tigor, and more will now attract an 18% GST, down from the previous 28%.
The revamped GST structure is a response to the carmakers' demands and is expected to help them post a sales surge after a prolonged sluggish pace of sales. The small car segment, a significant part of the Indian passenger vehicle market, has traditionally been favoured by customers despite the increasing popularity of crossovers, SUVs, and MPVs.
However, it's important to note that this reduction in GST will not apply to vehicles with engine capacities exceeding the specified limits. The current total tax incidence on these small cars is between 29-31%. With the reduced GST, these cars are expected to see a 12-12.5% decrease in ex-showroom prices. For instance, a small car priced at ₹500,000 will see a ₹62,500 decrease in price post September 22.
The GST Council has approved a two-slab structure, which is expected to make small cars and two-wheelers cheaper. This move is expected to boost demand for small cars, benefiting customers in the entry-level segment, first-time buyers, and a certain chunk of recurring car buyers.
Carmakers manufacturing small passenger vehicles have long advocated for a reduced tax structure and support for these vehicles. The reduced GST on small cars is not the only factor affecting their demand, other factors include affordability, economic uncertainties, geopolitical tensions, low income growth, and inflationary pressures.
The restructured GST regime will be enforced from September 22. The GST reduction on small cars is expected to result in a surge in sales for the automakers, helping them to regain momentum in the market. Despite the global trend favoring utility vehicles, the Indian passenger vehicle market still holds significance for small cars. The GST Council's decision is a step towards making cars more affordable for the common man, potentially stimulating growth in the automobile sector.
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