written by Khatabook | July 9, 2021

Understand the Impact of GST on Bikes in India and Save upto Rs 7000 under 350cc

Various sectors have benefited from the uniform tax structure under GST, including the two-wheeler segment in the automobile industry. For example, the tax rate under the old tax structure was 30% for bikes, whereas the GST rate on bikes is only 28%. However, motorcycles with an engine capacity of more than 350CC attract an additional cess of 3% under the Goods and Service Tax system, which makes the overall tax rate on these bikes 31%.

Impact Of GST On Bikes And Other Two-wheelers

The after GST bike price of various Royal Enfield bikes like Bullet 350, Thunderbird 350 were slashed by about Rs. 3000/- to 7000/- depending upon the model and the place of purchase of the bike.

For motorcycles, the after GST bike price lists engine capacity above 350CC, such as Bajaj Dominor and KTM Duke 390, is affected. But, the overall after GST bike price was reduced because the earlier tax system imposed a tax rate of about 28% to 35%. 

How Did Customers Benefit From The Implementation Of GST on Bikes?

When the government officially implemented the Goods and Service tax system on 1st July 2017, many leading manufacturers like Bajaj Auto, Royal Enfield passed on the benefit of the reduced tax rate to their customers by offering price discounts on various models.

The positive impact of GST on two-wheeler prices can be seen in the reduced prices of bikes. Bajaj Auto offered a discount of about Rs. 4500 on its motorcycles. However, the exact amount of price discount varied from model to model and the place or state in which the customer purchased the bike. It was the first bike manufacturing company in India to offer such price discount benefits to its customers. 

Another leading company, Royal Enfield, also passed on the benefit of the reduced tax rates to its customers by slashing the on-road price of its bikes.

The impact of GST on two-wheeler prices is evident from the price cut offered by various other companies on different models to their customers. Some of them are as follows:

  • The Hero Moto Corp announced a price cut of up to Rs 1800/- on its bikes depending upon the model of the bike and the place/state of purchase.
  • Another company, TVS, also reduced the price offered to its customers for its various models by up to Rs 4150/-,. This price cut also differed from state to state.
  •  Honda MotorCycle and Scooter India slashed the prices of its bikes and two-wheelers by up to Rs 5500/- on different models.
  • Suzuki Motorcycle India and Yamaha also reduced the prices of their bikes to pass on the benefit of the lower tax rate to its customers post the GST implementation.

Take a look at the after GST bike price list:

Name of Bike/Two-wheeler

Pre-GST Price

Post-GST price

Hero HF Deluxe 97.22 CC

Rs. 42,830/-

Rs. 41,545/-

Hero Splendor 97.22 CC

Rs. 48,280/-

Rs. 46,349/-

Hero Passion 97.22 CC

Rs. 52,605/-

Rs. 49,974/-

Honda CB Shine 124.7 CC

Rs. 56,268/-

Rs. 53,736/-

Hero Glamour 124.77 CC

Rs. 56,655/-

Rs. 54,389/-

Honda Dream Yuga 124.77 CC

Rs. 51,977/-

Rs. 50,418/-

Honda CB Unicorn 150 CC

Rs. 70,503/-

Rs. 68,388/-

Bajaj Pulsar 220 CC

Rs. 92,200/-

Rs. 88,512/-

Bajaj Platina 100 CC

Rs. 45,985/-

Rs. 44,606/-

Royal Enfield Classic 350 CC

Rs. 1,34,919/-

Rs. 1,30,197/-

Also Read: Impact of GST on Different Sectors

Does GST Also Affect The Service Charges Of Two-wheelers?

The Goods and Services Tax system not only affected the price of the products but also had an impact on the prices charged for the servicing of bikes and two-wheelers. The high tax rate on services increased overall service charges to be paid by the customers compared to the pre-GST charges. In addition, the tax rate on spare parts and servicing caused an increase in overall service cost charged to the customers.

What Is The Impact Of GST on Electric Vehicles?

At the time of the initial implementation of the Goods and Services Tax system, the tax rate on electric vehicles was 12%. However, the government later reduced it to 5% with effect from 1st August 2019. 

Reasons For Reducing The Tax Rate On Electric Vehicles 

  1. Increase the demand for electric vehicles: The government did this to increase the demand for electric vehicles among the customers and boost the electric vehicle industry. The electric vehicle manufacturers had been demanding a cut in GST rates on bikes for electric models. The increased price rates were leading to low purchasing percentage for electric vehicles among potential customers.
  2. Increase the affordability of these vehicles: The government's main aim in reducing the tax rate on electric vehicles was to make these vehicles more affordable for the customers and significantly alter the consumer's behaviour in favour of electric vehicles.
  3. Pass on the benefit of subsidy to consumers: An advantage of the GST system to the electric vehicle industry is that the transaction value on which the tax rate is applied to calculate tax does not include subsidies provided by the Central Government and State Government. So, the manufacturers of electric vehicles who receive subsidies from the government can save the tax cost and pass on cost savings to the customers.

Impact of GST on Bikes And Two-wheelers Industry's Overall Business Operations

The impact of the Goods and Service Tax system is not only confined to the on-road prices of bikes and two-wheelers and their servicing charges, but it has also affected the overall business operations in this sector. The new tax system has made the transactions more accurate, and clarity has also increased, making the processes smooth and hassle-free. In addition, the ease and openness of the new tax system have encouraged both national and international businesses to invest in India.

Expert's View On The Impact of GST on Bikes And Two-wheelers

 Although the GST system has offered a tax rate of 28% against the tax rate under the old system of 30%, many experts still believe that the present rate of GST on bikes @ 28% is not justified. Leading automobile manufacturing executives maintain that keeping the bikes under higher tax slab rates of 28% is not a justified criterion for the general public. In their view, bikes must not fall in the luxury category. 

Why Are The Industry Players Asking For More GST Tax Rate Cut On Bikes?

  • The adverse impact of the Covid 19 pandemic on the industry:  Many automobile experts suggest lowering the tax rate under GST on bikes from 28% to 18% so that the bikes or two-wheelers become easily affordable. 
  • Non-availability or lack of availability of public transportation during the pandemic: Public transportation is unavailable at many places, or even if available, they are not considered safe due to the ongoing pandemic situation. Therefore, the government should reduce the tax rate applicable on two-wheelers or bikes. 
  • Keeping the rates of GST on two-wheelers at par with sin goods is not justifiable: As stated by many experts, keeping the tax rates on bikes and two-wheelers at par with the rates charged on luxury goods and sin goods like tobacco is not a justifiable criterion. This point is especially true when people cannot pay higher prices due to the job and income crisis caused by the pandemic.
  • Introduction of new rules and norms for the automobile industry:  To follow the prescribed rules and standards, the manufacturers have to bring significant changes in manufacturing the vehicles. These changes have also resulted in the increased cost of production. One such rule of compulsory inclusion is a safety braking system such as CBS or ABS, depending upon the engine’s cubic capacity. It increased the manufacturing cost, and as a result, the retail prices offered to the customers also increased, thereby making the two-wheelers or bikes less attractive to the customer.
  • New emission norms to lower pollution levels: New emission norms were applicable from 1st April 2020. They made it mandatory for all companies to ensure BS-6 engine compliant vehicles were manufactured. The objective behind introducing the new emission norms was to lower the pollutant emission levels in India and bring them down at par with the emission standards in the European countries and the US. However, this shift of technology increased research and development cost, manufacturing, supply chain management and, in the end, an increase in retail prices. 

Also Read: Things You Need to Know About GST Explained in Details

Input Tax Credit On Bikes And Two-wheelers

At the time of the initial implementation of Goods and Services Tax, the input tax credit (ITC) was disallowed on all motor vehicles. But in 2018, the government added a new criterion in the new clause of GST law. This new criterion stated that buyers could not avail of the input tax credit on motor vehicles having a seating capacity of fewer than 13 persons. Therefore no input tax credit is available on bikes and two-wheelers.

Hence, input tax credit on the purchase of bikes and two-wheelers is not allowed unless it is used for specific purposes. One of the specific purposes is the purchase of bikes or two-wheelers for further supply. Thus dealers or traders having a business of selling bikes can avail of the input tax credit. Therefore, if you buy a motorcycle or two-wheeler for personal or office use, then the option of availing input tax credit is not available for you.

Conclusion: 

In the earlier tax structure, the vehicle dealers could not claim the credit of Excise duty, Central sales tax and other taxes on the acquisition of vehicles. This system inflated the purchase price of the vehicles for the dealers, which they recovered from the customers. Thus, the end customer was the ultimate sufferer. But with the GST tax system, the dealers can fully avail the credit of Central Goods and Service Tax (CGST), State Goods and Service Tax (SGST) and Integrated Goods and Service Tax (IGST) paid by them on the purchase of vehicles for further supply to the customers, thereby reducing the burden of high prices charged from the customer. 

Hence, introducing the Goods and Service Tax system had a more positive impact on the two-wheeler industry. Still, as per the current scenario, the government needs to slash the tax rates applicable on the bikes and two-wheelers to help this industry recover from the impact of Covid 19 which has adversely affected this industry. Therefore, lowering the tax rate can be helpful for the two-wheeler industry, the customers and the country as a whole. 

FAQs

What is the GST rate for bikes under 350CC?

The GST rates for bikes under 350CC  is 28%.

Is there a different rate of tax for every state on bikes and two-wheelers?

No, there are no different tax rates. After GST, there is only one tax rate applicable on bikes and two-wheelers across the country. GST is based on the principle of "One Nation One Tax".

Can I avail Input Tax Credit on purchase of two-wheeler for my personal use?

No, you cannot avail of the input tax credit on two-wheelers and bikes purchased for personal use.

What is the tax rate under GST on electric bikes?

At present, the rate of GST on electric bikes is 5%.

What is the GST rate on bikes and motorcycles with an engine capacity of more than 350CC?

The rate of GST on such vehicles is 28% plus an additional cess of 3%. Thus the total tax rate is 31% on bikes and motorcycles of above 350CC engine.

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