PM Modi’s Diwali gift: good news for car buyers, major GST cut on…, prices likely to drop by…

The government is considering a reduction in the Goods and Services Tax (GST) on small cars. At present, these vehicles attract 28% GST along with an additional 1% cess. Under the new proposal, cars under four meters in length with engines up to 1,200 cc (petrol, CNG, or LPG) may be taxed at just 18% GST. This can bring down prices of small cars.

Relief For Car Buyers On GST?

Tax rates on larger cars and SUVs may also be lowered, though they will remain expensive. A “special rate” of 40% has been proposed for these vehicles. Currently, combined GST and cess push their tax burden to between 43% and 50%. Meanwhile, electric vehicles are expected to continue with just 5% GST.

40% Special Rate Likely For Large Cars

According to reports, the government may restructure GST into just three key slabs 5%, 18%, and a special category. While the 12% and 28% brackets may be removed, a 40% rate could remain for certain categories like luxury cars and large SUVs. 

Essential goods would continue under the 5% bracket, while most industrial and consumer goods may fall into the 18% category. For example, products like white goods (refrigerators, washing machines, etc.) currently taxed at 28% may shift down to 18%, potentially reducing their market prices.

Small Car Prices Could Drop By 12%

Industry experts suggest that if GST is cut by 11%, the ex-showroom prices of small cars could fall by nearly 12 – 12.5% and reduce Rs 20,000–25,000. It give a major boost for consumers.

The tax cut will also benefit the entry-level car segment, where demand has been weak. However, compact SUVs like Hyundai Exter and Tata Punch (under four meters) may not see as big an impact since their popularity has been rising despite higher taxes.

PM Modi Hints Diwali Surprise

Modi had announced the proposal to reform the GST law in his Independence Day speech on August 15 from the ramparts of the Red Fort.

“For us, reform signifies the advancement of good governance, which is why we place a strong emphasis on continuous improvement. In the near future, we are set to implement reforms aimed at making life and business operations smoother and more convenient.

“As part of this vision, next-generation reforms will be introduced under the GST framework. This Diwali, these GST reforms will bring a double bonus to the people, enhancing their celebrations,” he said.

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