There is quite a bit of uncertainty prevailing in the automobile market in terms of how the upcoming goods-and-services tax (GST) will affect the prices of cars from July 1.
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To deal with this situation, different car manufacturers have different strategies. First of all, why is the uncertainty at the moment?
Broadly, there are four taxes on any car – excise (on manufacturing), value-added-tax and road-tax (both on sale), custom duty (if any part is being imported).
But, apart from these taxes, there are several other levies like octroi, which vary from state to state. As of now, there is no input-tax-credit on custom duty and excise. But, after GST comes into force from July 1, excise, custom duty and value-added-tax (VAT) will be absorbed by GST.
And, GST works on the principle of input-tax-credit. This means that dealers will be able to get a credit on the whole of custom duty, excise and VAT after GST will be implemented, as all these taxes will be subsumed by GST.
But, road tax will not be absorbed by GST and will continue to be levied on cars and other automobiles. Overall, the tax structure of automobiles market will go through a total overhaul. This has resulted in uncertainty in the market.
GST Council has announced a tax rate of 28% on all automobiles. But, over and above this, there will be additional cess too. In nutshell, it is very difficult to say as to what will happen to the price of various cars once GST comes into being from July 1.