The Government of India, in its 56th GST council meeting, announced a change that reformed the tax structure further in India. It proposed GST 2.0, which planned a reduction in Goods and Services Tax (GST) rates across many goods and services in the country. Slab rates were simplified, with reduction across many categories of products. The move also led to a cut in the GST rate of 28% to 18% for two-wheelers under 350cc engine capacity. Although, larger motorcycles above 350cc are to face a higher tax rate of 40%.
The impact of this GST reduction needs to be studied by buyers who plan to purchase two-wheelers funded by loans.
Understanding GST for Two-wheelers
First implemented in 2017, GST is an indirect tax that replaced other indirect taxes prevalent in India. It acts as a value-added tax that is uniformly applicable on the supply of goods and services across India. For two-wheelers under 350cc, the previous GST rate was 28%. The newly proposed GST rate cut brings this GST rate down to 18%.
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Impact of GST Rate Cut on Two-wheeler Prices
The reduction in GST rate from 28% to 18% brings a positive boost to the demand of two-wheelers in the country. The overall reduced price of two-wheelers have become attractive for consumers.
A 125cc bike, priced at ₹1 Lakh, used to attract 28% GST. This made its price ₹1.28 Lakh. Now, with 18% GST, its price shall be ₹1.18 Lakh.
The benefits of the GST rate cuts on the two-wheeler industry are highlighted below:
- Greater affordability: Two-wheelers are now more affordable than before, improving its demand.
- Consumer preferences: The positive move towards rate cuts, builds consumer’s interest in the two-wheeler segment.
- Manufacturer’s boost: The GST rate cut provides a boost to two-wheeler manufacturers as well, who will potentially benefit from the rise in two-wheelers’ demand.
Impact of GST Rate Cut on Two-wheeler Loans and EMIs
The two-wheeler sector stands to benefit from the GST rate cut. However, this GST revision is expected to directly impact the two-wheeler loan plans. The Loan-to-Value ratio is typically 80% of the total price of the two-wheeler. With a reduced GST rate, the final price will go down, thereby reducing the sanctioned amount and EMI amount too.
For example, The ex-showroom price of a 125cc bike is ₹1.25 Lakh. Before GST cut, buyers faced a total price of ₹1.6 Lakh (adding 28% GST). Their loan amount would have been: 80% of ₹1.6 Lakh = ₹1.28 Lakh which makes the 2-years monthly EMI amount at 11% p.a to be ₹5,966.
With the GST revision, buyers face a price of the same bike at ₹1.47 Lakh. Now, their sanctioned loan amount would be: ₹1.18 Lakh. Therefore, the 2-years monthly EMI amount at 11% p.a will be ₹5,500.
Consider the table below to understand the example.
| Particulars | Before GST Cut (28%) | After GST Cut (18%) |
|---|---|---|
| Ex-showroom price (125cc bike) | ₹1.25 Lakh | ₹1.25 Lakh |
| On-road price (after GST) | ₹1.60 Lakh | ₹1.47 Lakh |
| Loan-to-Value (LTV) Ratio | 80% | 80% |
| Sanctioned Loan Amount | ₹1.28 Lakh | ₹1.18 Lakh |
| Loan Tenure | 2 years | 2 years |
| Interest Rate (per annum) | 11% | 11% |
| Approximate Monthly EMI | ₹5,966 | ₹5,500 |
The above example shows how monthly EMI goes down, reducing the financial burden on the buyer. For a personalised understanding, EMI calculations can be simplified using the Bajaj Markets’ website for the two-wheeler loan EMI calculator.
How to Maximise Benefits from the GST Reduction on Two-wheelers
GST reductions can provide significant benefits to buyers in the form of lower prices and lower EMI amounts. The following steps can be used to maximise the benefits from GST reduction on two-wheelers:
- Bikes under 350cc: The GST reduction applies only to bike models with engine capacity under 350cc. Therefore, selecting a bike under 350cc will maximise benefits from GST reduction.
- Choose the right loan: Choose between different types of loans- bike loans, personal loans, etc. Buyers can negotiate terms with lending institutions as the loan amount goes down.
- Plan using EMI calculator: Buyers can effectively plan their repayment schedule using Bajaj Market’s two-wheeler loan EMI calculator.
Conclusion
Two-wheeler buyers and potential buyers are relieved with the latest GST 2.0 reforms. The drop in the GST rate from 28% to 18% in two-wheelers with less than 350cc engine capacity boosts demand, improves affordability, and enhances customer preferences. Two-wheeler loans and EMI amounts are expected to drop owing to the GST revision. Buyers can maximise their benefits by systematically planning their purchase.
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