Vikas Gawri Breaks Down the Taxes You Pay on Cars in India

Ever wondered why the price of your car significantly exceeds the sticker price? Taxes play a big role in inflating the final amount you pay. Finance influencer Vikas Gawri dives into the layers of car taxes in India, breaking down GST, cess, road tax, and more. Understanding these costs can help you make smarter financial decisions when buying your next vehicle.

1. GST: A Major Component of Car Taxes

Goods and Services Tax (GST) is a significant chunk of the total taxes you pay when purchasing a car.

How It Works:

GST rates range between 18% and 28%, depending on the car's engine size and luxury level. SUVs, with larger engines and higher luxury ratings, attract the maximum GST rate of 28%.

Key Insight:

If you're considering a luxury or high-end SUV, be prepared to shell out a hefty amount in GST alone.

2. Compensation Cess: An Additional Burden

On top of GST, a compensation cess is levied on certain vehicles, adding to the total cost.

How It Works:

The cess ranges from 1% to 22%, depending on the car's engine capacity, length, and luxury quotient. For example, small cars with engines under 1,200 cc attract a lower cess, while larger, high-end vehicles are charged more.

Key Insight:

Understanding the cess applicable to your car type can help you budget better and avoid surprises.

3. Road Tax: Varies by State

Road tax is a one-time payment you make during registration, and it depends on your car's price and the state you're in.

How It Works:

States impose road tax at rates ranging from 3% to 20% of the vehicle's cost. The exact rate is determined by the car's price and its category (private or commercial).

Key Insight:

Research the road tax rates in your state before making a purchase to understand the overall financial impact.

4. Registration Fees: A Mandatory Charge

Registration fees may seem minor compared to GST or cess, but they're an unavoidable cost.

How It Works:

This fee varies by state and vehicle type but is typically a small percentage of the car's price. It covers the issuance of your car's registration certificate (RC).

Key Insight:

While it's a relatively small component, it's important to account for this when calculating your car's total cost.

5. Green Tax: For Older Cars

Green tax is a levy aimed at discouraging the use of older, polluting vehicles.

How It Works:

Diesel cars and vehicles older than 15 years typically attract this tax. The amount depends on the car's age and fuel type, with diesel vehicles facing higher rates.

Key Insight:

If you plan to keep your car for many years, factor in potential green tax costs down the line.

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Buying a car in India involves navigating a complex tax structure. From GST and compensation cess to road tax and registration fees, multiple layers add up to significantly increase the final cost. As Vikas Gawri highlights, understanding these taxes can help you make more informed choices, whether you're purchasing your first car or upgrading to a new one.

Being aware of these costs upfront ensures that your car-buying journey is as smooth as the ride you're investing in.