You want to buy a car and have researched all the price ranges, features, and specialties of it. You make your calculations on payments after discounts or EMI facilities. But what are these extra amounts adding up to the overall price tag of your car during purchase? This is the sales tax; inevitable to pay during the time of buying a car.
The government of India reduces goods and sales tax GST by 7% on electric vehicles across the country, considering an increased demand for them in the market. However, no matter if you purchase a new, old, petrol-oriented or electronic car, paying sales tax is a must. Therefore, let us understand how to figure out its rates while buying a car.
Sales Tax on Personal Cars
The cars that you purchase for personal use may be your motor car, vehicles or even bicycle, all fall under the sales tax obligation. The GST rate for such personal cars and vehicles ranges from 5% to 12% in India.
Moreover, the sales tax you pay for these personal cars is not only limited to the time of their purchase. You will have to pay them during the time of any replacement of the car accessories or parts. Below are the sales tax rates for different sorts of personal-use cars;
- 5% GST on cars for the disabled: The lowest GST or sales tax rate is applicable on cars or carriages for the disabled. The union government set this rate at the 31st GST Council Meeting in December 2018.
- 12% Rate on two and three-wheelers: Electric vehicles both two and three-wheelers fall under this tax obligation. Non-motorised vehicles like rickshaws, cycles, delivery tricycles, hand carts, etc. also fall under this category.
- 18% GST on Baby carriages: There is a sharp 18% sales tax that will be imposed on you when you buy baby carriages. Besides, cars for physically handicapped persons have the same sales tax charges.
- 28% sales tax on motor vehicles: petrol and diesel cars including station wagons and racing cars, motorcycles, etc. fall under this category.
Sales tax on Used cars
Up until now, we were discussing sales tax on new cars. Now let us discuss the sales tax rate for used ones. The sales tax rate for the cars already in use is subsequently lower than the new set of cars.
The present sales tax applicable rate for smaller pre-owned petrol cars with engine capacity up to 1200 cc is 12%. Whereas the rate of tax for diesel cars with 1500cc engine capacity is 18% right now.
Previously the GST rate on used cars too was 28%. But the recent deduction on the rates truly helps the middle class to buy cars new or old. On 25th January 2018, the compensation cess on the sales tax was revised and put to nil. Therefore, the consumers only have to pay the GST on purchasing an old car depending on its engine capacity. The sales tax rate for used cars are;
- 12% sales tax rate on patrol cars with up to 1200cc engine capacity
- 18% sales tax rate on petrol cars with above 1200cc engine capacity
- 12% rate on diesel cars with engine capacity of up to 1500cc
- 18% sales tax rate on diesel cars with more than 1500cc engine capacity
How to Determine Sales Tax on a Car?
Determining the sales tax for your car is quite simple. You will first have to know the applicable tax rate at your place. Then by applying the tax rate to the final purchase amount of the vehicle, you will get the exact numbers of sales tax.
The simple formula to calculate sales tax for cars is;
Sales Tax Amount – C × T/100
*Here you can take the letter “C” as the “total cost of the vehicle” and “T” as the “tax rate”.
Hence, by multiplying the amount of the car’s overall cost by the tax rate and dividing it by 100, you will automatically get the sales tax rate behind it.
For say, the cost of the car you want to buy is “4 lakhs”. The sales tax rate under your area of jurisdiction is “12%”. Now the taxable amount in this purchase will be;
{Tax Amount = 4,00,000 × 12/100}
{Tax Amount = 48,000 Indian rupees}
Therefore, you will have to pay an extra amount of “48,000 Indian rupees”. Note that this tax amount will directly add to the price of your car when you purchase it.
Conclusion
To sum up, sales taxes are inevitable to pay at times of purchasing a car. The rate of sales tax differs on the basis of the vehicle type and its engine capacity. The government of India is especially emphasising the purchase of electric cars by reducing the sales tax rates on them. Therefore, if you want to purchase a new or old car today, calculate the amount you will have to pay as sales tax with the help of this guide.
Also, Read – A Comprehensive Guide on How to Calculate Sales Tax
FAQs
1. How much GST to pay on the sale of a car?
On and before 2018, the buyer of a car has to pay a 28% sales tax upon selling a car. Moreover, an additional 1% to 15% tax was imposed as additional cess. However, after 2018, the GST council changed this rule and made the GST rate for cars typically between 12% to 18%.
2. What is the formula for tax rate?
The formula for tax rate is very simple. It is; (Tax rate = Tax amount/ Price Before Tax × 100%). If you say it for instance, the tax amount is 10 and the price before tax is 50 then the tax rate will be (10/50 × 100% = 20%).
3. What is the Sales tax rate on SUVs in India?
Luxurious cars like SUVs come with a sharp 28% sales tax obligation in India. However, in the case of electric SUVs, the tax rate is significantly low, only 5%.
4. Is GST on cars refundable?
No, the goods and sales tax on cars is not refundable in India. You will not get a refund of the tax you pay for your personal car for domestic use. However, for certain export scenarios, you may get a GST refund.
