In India, car prices can sometimes be shockingly high, even for models that might seem fairly affordable abroad. But have you ever wondered why? The answer lies in a complex mix of taxes, duties, and government policies. Let’s break it down.
The Role of Taxes in Car Prices
One of the major contributors to high car prices is taxation. In India, the Goods and Services Tax (GST) on cars is as high as 28%, which is the highest tax slab for goods in the country. But that’s not all—there’s an additional cess (a form of surcharge) imposed on top of the GST. This additional cess can range up to 22%, depending on the type and size of the car.
Example: A 20 Lakh Car
Let’s say you want to buy a car priced at ₹20 lakh. With 28% GST and up to 22% cess, the total tax on the car could go as high as 50%. So, out of the ₹20 lakh, ₹10 lakh could go straight to the government in taxes. This makes the total on-road price of the car far higher than the showroom price.
The Road Tax
On top of GST and cess, the road tax is another hefty cost. This tax is calculated based on the showroom price of the car, and it varies by state. This means that in some cases, road tax can increase the total cost by a significant amount, sometimes compounding the taxes already paid!
Example: Toyota Fortuner
A Toyota Fortuner might cost ₹33.4 lakh at the showroom, but after adding GST, cess, and road tax, the final on-road price could jump to ₹35 lakh, with a staggering 59% of the price going straight into the government’s pocket.
The Import Duty on Luxury Cars
When it comes to luxury cars, the prices get even higher due to import duties. If a car is imported (especially luxury cars that aren’t manufactured in India), the government levies a 100% import duty. This makes luxury cars in India incredibly expensive compared to countries like the U.S. or Europe.
The Impact of Taxes on Your Earnings
To buy a car like a Hyundai Creta, which costs around ₹16 lakh, you’d need to earn significantly more. If you fall in the 30% tax bracket, to afford that ₹16 lakh car, you’d need to earn ₹22.8 lakh, as taxes will reduce your actual take-home salary.
Other Costs: Maintenance, Insurance, and Fuel
Even after purchasing a car, you’re not done with the taxes. The maintenance, insurance, and fuel all come with additional taxes. Fuel itself is heavily taxed, with approximately ₹10 out of every ₹100 spent on fuel going to the government.
Could Lower Taxes Make Cars More Affordable?
Imagine if taxes were reduced! More Indians would be able to afford safer, international-standard cars. As things stand, many affordable cars in India don’t meet global safety standards, which is a cause for concern. However, these are topics for another day.
Bottom Line: While taxes are essential for maintaining infrastructure and public services, they play a huge role in making cars unaffordable for many. If India could reduce these taxes, more people could afford safer and better vehicles, contributing to a higher standard of living.