Taxing Matters: A Guide to GST on Two-Wheelers

Two-wheelers have long been a popular mode of transportation in India, offering convenience and affordability to millions of people. With the introduction of the Goods and Services Tax (GST) in India, the tax landscape for various goods and services, including two-wheelers, has seen significant changes. Let’s understand GST on two-wheelers in India, and cover the rates, implications, and key considerations.

Introduction to GST

Goods and Services Tax (GST) is a comprehensive indirect tax introduced in India on July 1, 2017. It replaced a complex system of multiple indirect taxes, such as excise duty, service tax, and value-added tax (VAT), with a unified tax structure. GST is levied at various rates, depending on the type of goods or services, and it is categorized into four main tax slabs:  

GST Rate	Items
0% (Nil Rate)	Some essential goods and services are exempt from GST, such as fresh fruits,  vegetables, and basic healthcare services.
5%	This is the lowest GST rate and applies to items like household necessities,  rail tickets, and some mass consumption goods.
12%-18%	These rates apply to a wide range of goods and services,  including processed food, mobile phones, and financial services.
28%	The highest GST rate is applicable to items like luxury cars,  tobacco products, and consumer durables.

Additional Cess

In some cases, an additional cess may be levied on top of the GST rate. For example, a cess is applied to luxury cars, tobacco products, and aerated drinks.

GST on Two-Wheelers

Two-wheelers, which are an integral part of Indian transportation, fall under the category of goods, and therefore, they are subject to GST. Before GST, the tax rate on two-wheelers used to be 30%. This applied to all types of bikes. After GST was introduced, the rate applicable on two-wheelers in India is between 5% to 31%.  

GST Rate	Category
5%	Electric two-wheelers
18%	Battery charging and consumables
28%	Two-wheelers with engine capacity <350CC   Brake pads and clutch cable
31%	Two-wheelers with engine capacity >350CC

When you purchase a two-wheeler, it is mandatory to purchase motor insurance for your vehicle as well (as per the Motor Vehicles Act of 1989). 18% GST is applied on the purchase of this policy. You might notice this in the breakdown of the pricing of your policy. It is one of the factors which might increase the overall price of your policy.

GST Benefits for Two-Wheeler Buyers

For consumers, GST brings in several benefits when purchasing two-wheelers:

Transparency

GST has simplified the tax structure, making it easier for buyers to understand the tax implications on their purchases.

Reduced Price Discrepancies

GST has minimized price discrepancies between states and regions, making it more equitable for consumers across India.

Electric Vehicle Incentives

Electric two-wheelers often attract lower GST rates and come with other incentives to promote the adoption of eco-friendly transportation options.

Key Considerations for Two-Wheeler Buyers

When purchasing a two-wheeler in India, it's important to keep a few key considerations in mind about GST and related taxes:

GST Rate

Verify the applicable GST rate on the specific two-wheeler you intend to buy. Smaller engine capacity and electric two-wheelers generally have a lower GST rate.

Electric vs. Non-Electric

If you are considering an electric two-wheeler, take advantage of the lower GST rate and any additional incentives provided by the government.

State Taxes

Depending on the state in which you purchase the two-wheeler, there may be state-specific taxes and levies that can influence the final price. Verify these additional costs with the dealer.

Compliance and Documentation

Ensure that you adhere to all documentation requirements and follow the legal procedures, such as the purchase of motorcycle insurance while purchasing a two-wheeler to avoid any legal complications. Input Tax Credit (ITC) in terms of GST is claimed in situations where the two-wheeler is being used for commercial purposes or if they are leased. The ITC claimed may not necessarily benefit you as a buyer.

Conclusion

Understanding GST on two-wheelers in India is essential for both consumers and manufacturers. By considering the factors affecting GST rates and being aware of any additional taxes, you can make an informed decision when purchasing a two-wheeler. As the Indian government continues to promote eco-friendly transportation options, electric two-wheelers have become even more attractive due to their lower GST rates and incentives. In the evolving landscape of Indian taxation, GST plays a crucial role in making two-wheelers a cost-effective and sustainable mode of transportation.

FAQs

What is GST and how does it apply to two-wheelers? 

GST is a unified tax system implemented in India in 2017. It applies to the supply of most goods and services, including two-wheelers. When you purchase a new or used two-wheeler, the seller needs to charge GST on the selling price.

What is the current GST rate on two-wheelers in India? 

The GST rate on two-wheelers depends on the engine capacity: Two-wheelers with engine capacity below 350cc have a 28% GST rate, and those exceeding 350cc have a 31% GST rate (28% GST + 3% cess).

How does GST affect the insurance premiums for two-wheelers? 

GST is also levied on two-wheeler insurance premiums at a rate of 18%. This means you'll pay 18% GST on top of the base insurance premium amount.

Are there any exemptions or reductions in GST for electric two-wheelers? 

Yes, to promote electric vehicles, the Indian government offers a lower GST rate for electric two-wheelers. Currently, electric two-wheelers attract a GST rate of 5%.

How can I calculate the total cost of buying a two-wheeler including GST? 

Here's how to calculate the on-road price of a two-wheeler including GST:

1. Find out the ex-showroom price of the two-wheeler (mentioned by the manufacturer).
2. Calculate the GST amount by multiplying the ex-showroom price by the applicable GST rate.
3. Add the GST amount to the ex-showroom price.
4. You might need to add other charges like registration fees, road tax, and insurance (with 18% GST on the premium).

  *Standard T&C Apply *Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms, and conditions, please read the sales brochure/policy wording carefully before concluding a sale. The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making any related decisions.