As indicated earlier the Indian government has reduced tax rates on certain classes of cars and motobikes. Petrol, diesel and hybrid cars previously taxed at 28 percent will now attract only 18 percent GST, provided they fall within the current small car definition: those which are below 4 metres in length and are equipped with smaller than 1,200cc petrol engines or below 1,500cc diesel engines.
Motorcycles with engine capacity below 350cc will also see a tax drop from 28 percent to 18 percent.
The tax reduction on small cars and small capacity motorcycles will definitely be a boost to the automobile sector that has been looking forward to stimulus to accelerate growth.
Large cars will also see some benefit as the earlier the tax structure had a 28 percent GST plus cess, which took the effective tax rate to 48-50 percent. These cars will now attract only a GST amount of 40 percent.
The dampner, however, is on large capacity motorbikes – that is those above 350cc. Earlier these two-wheelers attracted an effective tax rate of 31 percent (28 percent GST + 3 percent cess). However, with the new GST reforms, the tax slab now stands at 40 percent, effectively, putting large capacity bikes in the same category as sin goods, like alcohol and tobacco.
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