The automobile industry in India is one of the largest automotive markets in the world. The industry contributes around 7 % of the country's Gross Domestic Product (GDP). In past, the Government of India has taken various measures and initiatives to promote and to ensure the growth potential in this sector. It is one of the main drivers of ‘Make in India’ initiative.
As the new goods and services tax (GST) regime replaces the present central value added tax. The table below shows that most vehicles will fall under the highest tax bracket of 28%, with an additional cess ranging from 1-15% based on the segment the vehicle falls under, its engine size and type (petrol or diesel) and also size of vehicle.
Broadly, the effective GST rates indicate the highest tax savings for sport utility vehicles (SUVs), where the incidence is down to 43% from the present 55.3%. It would be lower also for mid-sized cars or sedans and large cars. There would be a marginal tax savings on small cars (except diesel), two-wheelers and commercial vehicles.
Although electric vehicles would get a relaxation, but hybrid vehicles will be taxed at 28% plus a 15% cess that may counter the growth of environment-friendly vehicles.
Under the current tax system, there are several taxes applicable on this sector like excise, VAT, sales tax, road tax, motor vehicle tax, registration duty on car and bikes which will be subsumed by GST. so GST motto provens One nation, One tax.