Customers wait for GST benefits as auto majors announce price cuts

Curiosity and excitement surround the auto industry following the announcement of a Goods and Services Tax (GST) revamp, which takes effect on September 22. Car prices are expected to fall, and customers are waiting to cash in on the windfall to purchase their dream cars and bikes.

The GST Council has completely overhauled the tax structure by streamlining the existing slabs to just two primary rates — 5 per cent and 18 per cent — eliminating the 12 per cent and 28 per cent slabs. Additionally, it has introduced a new 40 per cent slab for luxury and sin goods, effective from September 22.

According to the new structure, petrol vehicles with an engine capacity of less than 1,200 cc and a length of up to 4 meters, as well as diesel vehicles with an engine capacity of less than 1,500 cc, now fall under the 18 per cent GST slab- down from the earlier 28 per cent. For commercial vehicles, including trucks and buses, a uniform 18 per cent GST rate will apply.

However, vehicles with engine capacities over 1,200 cc and lengths exceeding 4 meters will now attract a higher tax rate of 40 per cent, up from 28 per cent. Similarly, for two-wheelers, those with an engine capacity of less than 350 cc will fall under the 18 per cent slab, while those above 350 cc will be taxed at 40 per cent.

Will the price actually fall?
Most vehicle manufacturers have announced price cuts across a majority of their models following the GST revision. Maruti Suzuki has slashed prices by ₹50,000 to ₹1.29 lakh on several of its vehicles. Similarly, Tata Motors, Skoda, Toyota, Mahindra, Renault, Kia, and Volkswagen have all announced price reductions across their respective model ranges.

In the two-wheeler segment, brands such as Royal Enfield, Honda, and Hero have also announced price cuts in response to the revised GST structure.

However, in Kerala, sales executives noted that the benefits of the GST revision were combined with festive offers for Onam and the upcoming Diwali season. "We had a lot of exciting offers for customers during the Onam season. The GST announcement came in the middle of it, so we decided to pass on the benefits of the GST cuts along with our festival offers," said Anoop Mohanan, Marketing Head at TVS Renault, Kerala.

He further added that this is the best time for customers to buy vehicles, as cars are being sold with festive benefits combined with the new GST rates till September 30, effectively reducing prices by more than the tax cut alone.

Renault is currently offering festive benefits ranging from ₹40,000 to ₹75,000 across models, including the Kwid, Triber, and Kiger. When combined with the new GST rate cuts, the total benefit can go up to ₹1.8 lakh, he said. However, once the festive offers end, the GST-related benefits alone will amount to approximately ₹80,000 to ₹1.2 lakh.

A sales executive from Popular Maruti in Alappuzha echoed the same sentiment. Festive offers of up to ₹50,000 were combined with the price cuts announced by manufacturers. However, once the festive offers end, by the end of this week, customers will only be able to avail of the GST benefit, and prices are likely to see a slight increase thereafter.

Will luxury SUVs see tax hike?
It is widely expected that vehicles above 1,200 cc, particularly in the luxury segment, will see a price increase from September 22. However, tax experts and sales executives suggest a different reality.

Most vehicles in this segment currently attract a base tax rate of 28 per cent. In addition, a compensation cess ranging from 17 per cent to 22 per cent is levied, effectively raising the total tax burden to nearly 50 per cent.

However, starting September 22, this compensation cess will be eliminated, offering an overall relief of around 5–7 per cent on vehicles that will fall under the new 40 per cent GST slab, a government official told Onmanorama.

"It has been communicated that the prices of models like the Grand Vitara and Ertiga, which have engine capacities above 1,200 cc, could drop by around 5 per cent from September 22," said an official at Popular Maruti, adding that further clarity on this is expected soon.

The compensation cess was initially introduced in 2017 to offset revenue losses incurred by states due to the implementation of GST. It was initially intended to be phased out by 2022. However, the central government continued the levy, citing the need to recover losses incurred during the COVID-19 pandemic, according to a government official.

Customers waiting for clarity
Even though the benefits offered by companies remain in place, many customers are withholding their purchases until after September 22. 

"Customers are enquiring about the GST changes, and many are postponing their purchases. People are booking vehicles but are only willing to register them after September 22," said an official at Popular Maruti.

Anoop shared a similar sentiment. He explained that the GST announcement, which came in the middle of the Onam season in Kerala, impacted sales as customers waited for more clarity. "Sales obviously decreased compared to the previous year. However, most customers were unaware of the attractive offers we had, which provided greater benefits than the GST cuts. There was hesitation among buyers, and that reflected in our sales," he said.

Alphin George, Sales Lead at Volkswagen in Kottayam, had a slightly different perspective. He noted that while customers were curious about the GST changes, it did not significantly impact their purchasing decisions. "Though there was a very marginal dip, overall sales were not affected much," he said.

Same story for motorcycles
In the case of motorcycles, those above 350 cc have seen a significant surge in bookings, with many customers rushing to complete registration before September 22 to take advantage of the existing lower prices — ahead of the 40 per cent GST slab coming into effect.

However, for motorcycles with engine capacities up to 350 cc, the sales trend has not been as strong. "Sales aren’t as hot as those for bikes above 350 cc," said Saneesh KS, Sales Lead at Royal Enfield dealership Veliyathu Motors. He added that people are booking bikes in this segment but are choosing to register them after September 22 to take advantage of the GST cuts.