GST Likely To Spur Auto Sector Growth

Nikita Singh and Lohit Bharambe scan the auto sector for investment opportunities in the GST era, even as the sector continues on its growth momentum.

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Talk of the town is 'GST' in India right now and all the stakeholders, including businessmen and consumers, are trying to assess the financial impact the major tax reform may have.

Automobile sector in one such sector which is impacted by the GST. Apart from being one of the biggest sectors in India and being the third largest automobile sector in the world, Indian automobile sector is also one of the fastest growing sectors in India.

Whether GST will further infuse momentum to the already growing sector is something that will be interesting for investors. The impact of GST on earnings will be known only after couple of quarters and it may be too early to objectively quantify the impact. Prima facie, it does look like 

GST is all set to further spur growth for the automobile sector in India which contributes over 7 per cent to the country’s GDP.

With GST being implemented, the sector witnessed a subsuming of excise, VAT, sales tax, road tax, motor vehicles tax as well as registration duty on cars and bikes.

Car being categorized as a 'luxury', a standard tax rate of 28 per cent is levied on the automobile sector which includes small car segment, mid-sized cars, luxury cars, two-wheelers, commercial vehicles and passenger vehicles.

The passenger vehicles in sector will also attract an additional cess between 1 to 15 per cent, different for different ranges of automobiles. 

The small car segment, defined as a car with an engine capacity of 1200cc, was earlier subjected to a 12.5 per cent excise, 1.1 per cent cess, 14 per cent VAT along with the state governments' road tax and motor vehicle tax, all summing up to about 28 per cent.