I have been postponing my plans of buying a car for nearly eight months now – all thanks to my dear friend Abhir! Abhir is a shrewd planner and an excellent guide when it comes to big investments, so, without a doubt, he becomes the default financial advisor in our group. The first time I shared the idea of buying a car, he immediately told me, “Wait until July 2017, the GST system is going to overhaul the market scenario, including the auto industry and loan industry. So, there are chances that you might strike a good deal.” Abhir’s confidence and knowledge about economy and finance compelled me to put a pin on the idea of buying a car and I am glad to have waited!
Car loans are considered as one of the most popular products in the loan segment. Affordable and accessible vehicle loans have been considerable factors in the growth of vehicle sales. Apart from interest rates, a car loan also attracts service tax for processing fees and prepayment charges. The processing fee for a vehicle loan can be 1%-2% of the loan amount; whereas the prepayment charge is calculated at 2%-6% of the principal outstanding amount. In the pre-GST era, a standard service tax of 15% was added to these charges to derive the final processing fee and prepayment charge. But, post-GST, there has been an increase of service tax by 3% thereby replacing the earlier 15% with the new 18% service tax.
Before you jump into conclusions and start bragging about price hike due to GST, consider the price slashes of cars! Agreed, that there has been an increase in the service tax, but the hike will not leave you overwhelmed. In addition, consultants and tax experts say that prices of small cars will remain more or less the same as there will only be a minor hike in the duty under the GST, whereas buyers of premium segment vehicles will be the key beneficiaries with the reduction of duty. All the segments of cars have been placed at the topmost tax bracket of 28% including a cess in the range of 1% to 15% – small cars 1% cess + 28%; mid-sized cars 3% cess + 28%; and luxury cars 15% cess + 28%.The below table is a quick view of how GST has impacted the price of cars in various segments:
|Under 4-metres||Under 1.2-litre Petrol||31.5%||29%||2.5%|
|Under 4-metres||Under 1.5-litre Diesel||33.25%||31%||2.25%|
|Under 4-metres||Above 1.2-litre Petrol or 1.5-litre Diesel||44.7%||43%||1.7%|
|Above 4-metres||Above 1.2-litre Petrol or 1.5-litre Diesel||51.6%||43%||8.6%|
|Electric Vehicles (EVs)||20.5%||12%||7.5%|
Personally, I feel the drop in car prices minimises the impact of the rise in service tax of car loans; offering a win-win situation for both – the automobile industry and the consumers! So finally, my wait of owning a car is over. How about you?