Buying a car priced above ₹10 lakhs in India is often seen as a luxury or an upgrade to a premium lifestyle. However, many potential buyers are surprised by the final cost due to the Goods and Services Tax (GST) applied to such vehicles. The GST on cars above ₹10 lakhs significantly increases the on-road price, and understanding this tax structure is important for anyone planning a purchase in this price bracket. The tax impacts not just private buyers but also businesses, car manufacturers, and the overall automobile industry.
Understanding GST on Automobiles
GST, or Goods and Services Tax, is a unified tax system introduced in India in 2017 to replace multiple indirect taxes like VAT, excise duty, and service tax. Automobiles fall under this system and are taxed according to their type, engine capacity, fuel type, and length.
Cars in India are not all taxed equally under GST. The applicable tax depends on the classification of the vehicle. For cars priced above ₹10 lakhs, especially those considered luxury, SUV, or high-performance vehicles, the tax burden is higher due to a combination of GST and cess charges.
Base GST Rate
The base GST rate on most cars is 28%. This applies to small, mid-size, and large cars, regardless of fuel type. However, for cars above ₹10 lakhs, the actual tax paid is much higher because of additional cess imposed on top of the base GST rate.
Additional Cess on Cars Above ₹10 Lakhs
Cars that fall into the high-value segment are subject to a compensation cess. This cess is levied on top of the base GST rate and varies depending on the type of car. The cess was introduced to compensate states for the revenue lost due to the GST rollout and is primarily applicable to items considered ‘luxury’ or ‘sin goods.’
Cess Structure Based on Car Type
- Mid-size cars: Attract 15% cess in addition to the 28% GST.
- Large cars: Attract 20% cess over the base GST.
- SUVs (Sport Utility Vehicles): Attract the highest cess at 22%.
This means that some cars above ₹10 lakhs can face a total tax burden of up to 50% of the ex-showroom price, significantly impacting the final cost for the buyer.
Impact on On-Road Price
To understand how GST and cess affect the actual cost of a vehicle, it’s important to break down the pricing structure:
- Ex-showroom price: The base price of the car, including manufacturing cost and dealer margin.
- GST (28%): Applied on the ex-showroom price.
- Cess (15%-22%): Added over and above the GST.
- Registration charges, insurance, and other fees: Added to get the final on-road price.
For example, if a car is priced at ₹12 lakhs ex-showroom and is classified as an SUV, the total tax (28% GST + 22% cess) can reach ₹6 lakhs. This pushes the on-road price to nearly ₹20 lakhs after adding registration and insurance.
Why Cars Above ₹10 Lakhs Are Taxed More
The rationale behind higher taxation for vehicles above ₹10 lakhs lies in government policy. These cars are generally considered luxury items, not essential goods. The higher tax rate is aimed at:
- Reducing the demand for high-emission vehicles
- Generating revenue for state and central governments
- Encouraging the use of smaller, fuel-efficient, or electric vehicles
This is in line with environmental and economic goals, though it has also sparked criticism from manufacturers and consumers alike.
GST on Electric Cars Above ₹10 Lakhs
One exception to the high GST and cess regime is electric vehicles (EVs). Regardless of their price, electric cars attract only 5% GST and no additional cess. This is part of the government’s strategy to encourage clean mobility solutions and reduce the country’s carbon footprint.
For instance, even if an electric SUV is priced above ₹10 lakhs, it will still be taxed at the lower GST rate, making it significantly more affordable compared to similarly priced petrol or diesel vehicles.
Industry Reactions and Criticism
Automobile manufacturers and industry bodies have often lobbied for a reduction in GST rates for cars, especially those just over the ₹10 lakh mark. They argue that:
- Middle-class buyers are discouraged from upgrading due to high tax burdens.
- The luxury car tag is outdated for many vehicles priced just above ₹10 lakhs.
- High taxation slows down the growth of the automobile sector.
Some stakeholders also highlight that many vehicles in this price bracket are used for commercial and business purposes and should not be treated as luxury goods.
Government’s Stand and Revenue Considerations
Despite the criticism, the government has maintained its stand on taxing high-value cars more. Given that luxury cars and SUVs are viewed as items consumed by the higher income group, the tax policy aims to maintain equity. Moreover, taxes from automobile sales constitute a significant part of state and central revenues.
However, there have been discussions within the GST Council to rationalize rates, especially as car sales impact job creation, industrial growth, and consumer spending.
How Buyers Can Plan Better
For individuals planning to buy a car priced above ₹10 lakhs, understanding the GST implications is key to budgeting correctly. Some useful tips include:
- Compare similar models: Cars slightly below the ₹10 lakh range may offer better value due to lower cess slabs.
- Consider electric vehicles: If an EV meets your needs, the lower GST rate can provide substantial savings.
- Check offers and discounts: Year-end sales or festival offers may reduce the effective price and lessen the tax impact.
- Include all costs: Don’t just look at the ex-showroom price factor in taxes, insurance, registration, and accessories.
Future Outlook
The automobile industry continues to hope for GST reforms that may include tiered or category-based tax structures, especially for non-luxury vehicles priced slightly above ₹10 lakhs. With increasing focus on sustainable transport and consumer affordability, policy adjustments may occur in the future to balance revenue goals with industry health.
Meanwhile, electric vehicles are expected to benefit from continued tax incentives, and hybrids may also see favorable tax treatment if proposed reforms are implemented.
GST on cars above ₹10 lakhs plays a major role in determining their affordability and accessibility. With a base GST of 28% and an additional cess of up to 22%, the tax burden can significantly increase the overall cost. While this policy helps generate revenue and discourage excessive vehicle ownership, it also affects consumer behavior and industry sales. Buyers should remain informed and explore all options, including EVs and slightly lower-priced alternatives, to make smart decisions. As government policies evolve, so too might the structure of GST on automobiles, offering future relief to both consumers and manufacturers.