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Taxes applicable on Buying and Selling a Car

The automobile industry in India constitutes 27% of the industrial Gross Domestic Product (GDP) and 49% of the manufacturing GDP. It is compulsory for every individual who owns a vehicle to pay taxes to the government. A parliamentary panel suggested lowering the GST rate until the economy revives and applying uniform road tax across all States. The GST applied to each car differs depending on the body length, fuel type, and usage.

Before GST was introduced in the country, multiple taxes had to be paid, such as:

● Excise Duty

● VAT

● Infrastructure Cess

● CENVAT

● Entry Tax

GST is beneficial for those who purchase small cars like Alto, Santro, or Nano since a minimum cess of 1% is only charged over and above the GST rate of 28%. While cars like Maruti Suzuki Dzire and Hyundai Grand i10 attract a 29% GST, cars like Hyundai i20, Maruti Suzuki Vitara Brezza attract 31% GST.

The table below will give a clear picture of GST applied for cars.

GST on buying a car is as follows:

Type of Vehicle

Rate

Cess

Payable

Petrol/CNG/LGP car less than 1200cc

28%

1%

29%

Petrol/CNG/LGP car more than 1200cc

28%

15%

43%

Diesel car less than 1500cc

28%

3%

31%

Diesel car more than 1500cc

28%

20%

48%

Electric car

28%

Nil

12%

Taxes for Buying a Car:

● Tax Collected at Source (TCS) is to be deducted by the seller

● As per section 206C (1F) of the Income Tax Act, 1961 the seller would have to deduct TCS at 1% on the sale of a car above Rs.10 lakhs

● Due to the Covid-19 situation, from 1st October 2020, the seller would have to collect TCS at 0.01% on sale above Rs.50 lakhs

● If the sale is between a buyer and another dealer, TCS is required to be deducted by the seller

Taxes for Selling a Car:

● If the vehicle is used for a commercial purpose, it is as a capital asset and is chargeable to tax as long term or short term capital gain

● If a vehicle is used for personal purpose, it is not a capital asset and does not attract tax on the sale

Road Tax:

The Indian Government charges a road tax to the citizens of India to maintain roads, bridges, highways. . They also provide commuters with road signs, traffic lights, footpaths, and emergency services in case of accidents. It is mandatory to pay the road tax according to the Motor Vehicle Taxation Act.

While buying a vehicle in India, there are two prices to keep in mind, the on-road price and the ex-showroom price. The ex-showroom price is the amount one has to pay, to buy the vehicle and the on-road price is the price one needs to pay to drive the vehicle in India.

Four-Wheeler Insurance:

It is mandatory to get insurance for your vehicles in India to give complete protection against the physical damage of the car from natural and man-made calamities. To safeguard yourself from having to pay for the expenses, get yourself a decent insurance plan. Click here to know more about various insurance policies for your four-wheeler.

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