PROJECT REPORT

ON

IMPACT OF GST ON INDIAN AUTOMOBILE

SECTOR

SESSION 2019-2020

Submitted to : Submitted by:

Dr. Shallu goel Khushi Bansal

B.COM (Hons) 5th sem

Roll No.

VAISH MAHILA MAHAVIDYALAYA, ROHTAK

 Certificate
This is to certify that the content of this project entitled
“PROJECT REPORT ON IMPACT OF GST ON INDIAN
AUTOMOBILE SECTOR” by Nitti is the bona fide work of her
which is carried by under the guidance and supervision of Dr.
Shallu goel .This report is up to the described standard for the
purpose of which it is submitted.

KHUSHI BANSAL
 Acknowledgement
I would like to express my special thanks of gratitude to all
those who have provided me with guidance and assistance in
doing this project.

I would like to thank Dr.Shallu goel , for allowing me the

opportunity to do this wonderful project and helping me to
complete this project with her wide experience and knowledge.
I came to know about so many new things I am really thankful
to them.

Last but not the least, I would like to extend my thanks to my

college for allowing me the opportunity for doing this project
work.

KHUSHI BANSAL
 INTRODUCTION TO GST
The Goods and Services Tax Bill (GST) was passed recently, it
received the assent of President Pranab Mukherjee on the 8th
of September, 2016. The Bill with its passing follows with
positive implications for the automobile industry. Being divided
under the two heads of Centre and State, several taxes that are
applicable at this time will be assimilated under these two
heads.

The current industrial situation shows how highly the

automobile industry is taxed at this point. Almost 77% of the
whole is levied on the cost of the vehicle itself with the
remaining posed around it. With cess levied by the Finance
Minister of various percentages on different vehicles, the prices
of cars have gone up. The categories of the same have been
enlisted in the next to next topic. When the budget was being
presented by the Minister in Lok Sabha, he spoke of the
affliction on air pollution that these vehicles have and pointed
out how perhaps the cess will reduce the power in hands of
people to purchase such vehicles and opt for public transport .

It is very difficult to accept change but it is the law of nature so

a person cannot spare himself from change. The introduction of
goods and services tax (GST) in Indian Taxation System was a
huge step taken by the Indian government. Its advent caused a
lot of hue and cry in the country. GST is described as an action
without application of mind. Many people allege that it is a
complex, vague and ambiguous. It is often argued that the
procedure and implementation of GST are difficult for
Chartered Accountants and other people from commerce, so
expecting an individual to understand this would not only be
inappropriate but also be unjust. The introduction of GST, even
after getting criticised by academicians, scholars and, laymen
has benefited some states.

Goods and Services Tax :-

Goods and Services Tax (GST) is an indirect taxation in India
merging most of the existing indirect taxes into single system of
taxation. It was introduced as The Constitution (One Hundred
and First Amendment) Act 2016, following the passage of
Constitution 122nd Amendment Bill. The GST is governed by
GST Council and its Chairman is Union Finance Minister of
India, Mr. Arun Jaitley.
GST is a comprehensive indirect tax on manufacture, sale and
consumption of goods and services throughout India (Except
state of Jammu and Kashmir), to replace taxes levied by the
central and state governments.
CGST - Central Goods and ServiceTax
SGST - State Goods and Service Tax
IGST - Integrated Goods and Service Tax
UTGST – Union Territory Goods and Service Tax

Facts -
 France, first country to introduce single GST(VAT) in
1954.
 Brazil, Canada has dual GST.
 160 countries have implemented GST/VAT in some form
or other.
 India will follow Canadian model of GST.

GST has 4 tax slabs :-

 5% slab
 12% slab
 18% slab
 28% slab

5% slab

28% slab GST

12% slab
 18% slab
SALIENT FEATURES OF GST :-

1. GST would be a comprehensive indirecttaxon

manufacture, sale and consumption ofgoods and services
throughout India, toreplace taxes levied by the central and
stateGovernments.
2. This method allows GST-registered businesses to claim
tax credit to the value of GSTthey paid on purchase of
goods or servicesas part of their normal commercial activity.
3. Taxable goods and services are notdistinguished from
one another and are taxedat a single rate in a supply chain
till the goods or services reach the consumer.
4. Administrative responsibility wouldgenerally rest with a
single authority to levy
tax on goods and services.
5. Exports would be considered as zero-ratedsupply and
imports would be levied the sametaxes as domestic goods
and servicesadhering to the destination principle inaddition
to the Customs duty which will notbe subsumed in the GST.
6. Amalgamating several Central and State taxesinto a single
tax would mitigate cascading ordouble taxation, facilitating a
commonnational market.
7. The simplicity of the tax would lead to easieradministration
and enforcement.
8. From the consumer point of view, the biggestadvantage
would be:
 reduction in the overall tax burden on goods, which is
currently estimated at 25%-30%
 free movement of goods from one state to another
without stopping at state borders for hours for
payment of state tax or entry tax.
 reduction in paperwork to a large extent
Advantages of GST:-
 GST is expected to build a more transparent and
corruption-free tax system in India.
 It is easy to start business in the post-GST regime and tax
regulations are easier than before.
 Input credit (ITC) mechanism ensures an uninterrupted
flow of cash for businesses and reduced price of
goods/services for the end consumers.
 The merging of all the indirect taxes makes it easier to
process the tax payment for the government as well as for
the taxpayers.
 Tax harmonization
 More simplified movement of goods and/or services
between states and within the country.
 GST is calculated on the total amount, irrespective of the
type of sales and services.
 GST has eliminated the cascading effect of taxes by
introducing a unified tax system.
 Since it is a destination based tax, the tax will only be paid
by the consumer upon delivery of goods/services.
 The implementation of Goods & Services tax puts India in
the line of international tax standards, making it easier for
Indian businesses to sell in the global market.
 Inflation is expected to stay under control after the
implementation of GST.
 GST is expected to reduce the price of production,
operational and others costs that will benefit the end
consumers.
 The cost of collecting the tax is reduced thus resulting in a
higher revenue for the government.
  GST has the mechanism of integrated tax that makes sure
that the tax burden is split impartially between
manufacturing goods and services.
 The complexity of tax compliance is reduced as all the
returns are being filed and taxes are being paid through a
single platform.
Disadvantages of GST :-
 GST compliance and tax filing has increased the
implementation cost for businesses, as they are required
to invest in computers, accounting (GST) software and/or
trained GST experts (CAs and accounting experts).
 The process off GST compliance is also proving daunting
as most businesses are not yet fully aware of the rules,
provisions and processes of the new tax system, including
the process of return filing, GST registration, returns filing
schedule, invoicing and billing, etc.
 The overall cost of doing business is going to increase, at
least in the first few months of GST.
 The implementation of GST in the middle of the financial
year is creating a lot of confusion among business, as to
whether to follow the old tax rules or new ones or both.
 Many businesses, especially small businesses and
startups, do not usually have the money or tech resources
to get compliant with the digital GST system. A cloud-
based (online) GST software like the Gen GST could be a
perfect solution to this problem.
 The tax relaxation limit for small manufacturing
businesses, which was 1.50 crores earlier, is now Rs. 20
lakh under the GST system. This has effectively increased
the tax burden for such businesses.
 No clarification about tax holidays has further increased
operation costs for textile, pharma and other
manufacturing industries.
 The chaos among businesses has ended up creating a
disruption in the industry.
  Consumers are not very hopeful about GST benefits and
implementation and therefore, they are reluctant to adapt
to the new system.
 The tax rate has been increased for many products, thus
increasing their costs.

Automobiles Industry in India :-

With a scintillating 2.3 million units produced in 2008 the Indian

automobile industry bagged the position of being the ninth
largest in the world. Following economic liberalization, Indian
domestic automobile companies like Tata Motors Maruti Suzuki
and Mahindra and Mahindra expanded their production and
export operations in and across the country and since then the
industry has only shown signs of growth. The automobile
industry comprises of heavy vehicles (trucks, buses, tempos,
tractors), passenger cars, and two-wheelers.
The Indian automobile industry seems to come a long way
since the first car that was manufactured in Mumbai in 1898.
The automobile sector today is one of the key sectors of the
country contributing majorly to the economy of India. It directly
and indirectly provides employment to over 10 million people in
the country. The Indian automobile industry has a well
established name globally being the second largest two
wheeler market in the world, fourth largest commercial vehicle
market in the world, and eleventh largest passenger car market
in the world and expected to become the third largest
automobile market in the world only behind USA and China.
The growth of the Indian middleclass along with the growth of
the economy over the last few years has resulted in a host of
global auto giants setting their foot inside the Indian Territory.
Moreover India also provides trained manpower at competitive
costs making the country a manufacturing hub for many foreign
automobile companies. India proves to be a potential market as
compared to most of the other countries which are witnessing
stagnation as far as automobile industry growth is concerned.
The automotive industry comprises a wide range of companies
and organizations involved in the design, development,
manufacturing, marketing, and selling of motor vehicles. It is
one of the world's largest economic sectors by revenue.

With a scintillating 2.3 million units produced in 2008 the Indian

automobile industry bagged the position of being the ninth
largest in the world. Following economic liberalization, Indian
domestic automobile companies like Tata Motors Maruti Suzuki
and Mahindra and Mahindra expanded their production and
export operations in and across the country and since then the
industry has only shown signs of growth. The automobile
industry comprises of heavy vehicles (trucks, buses, tempos,
tractors)..

The Indian automobile industry seems to come a long way

since the first car that was manufactured in Mumbai in 1898.
The automobile sector today is one of the key sectors of the
country contributing majorly to the economy of India. It directly
and indirectly provides employment to over 10 million people in
the country. The Indian automobile industry has a well
established name globally being the second largest two
wheeler market in the world, fourth largest commercial vehicle
market in the world, and eleventh largest passenger car market
in the world and expected to become the third largest
automobile market in the world only behind USA and China.

The growth of the Indian middleclass along with the growth of

the economy over the last few years has resulted in a host of
global auto giants setting their foot inside the Indian Territory.
Moreover India also provides trained manpower at competitive
costs making the country a manufacturing hub for many foreign
automobile companies. India proves to be a potential market as
compared to most of the other countries which are witnessing
stagnation as far as automobile industry growth is concerned.

The Indian automobile industry proved to be in good shape last

year even after the economic downturn. This was majorly due
to the fact of renewed interest shown by global automobile
players like Nissan Motors which consider India to be a
potential market.

Every other day, we have been hearing about some new

launches, some low cost cars - all customized in a manner
such that the common man is not left behind. In 2009, the
automobile industry is expected to see a growth rate of around
9%, with the disclaimer that the auto industry in India has been
hit badly by the ongoing global financialcrisis.

The automobile industry in India happens to be the ninth largest

in the world. Following Japan, South Korea and Thailand, in
2009, India emerged as the fourth largest exporter of
automobiles. Several Indian automobile manufacturers have
spread their operations globally as well, asking for more
investments in the Indian automobile sector.

Potential of the Automobile industry In 2008, Hyundai Motors

alone exported 240,000 cars made in India. Nissan Motors
plans to export 250,000 vehicles manufactured in its India plant
by 2011. Similar plans are for General Motors.

The major automobile companies of India today came out with

their monthly sales data for July 2019 and the numbers are not
at all encouraging. The prominent carmakers like Maruti
Suzuki, Hyundai, Mahindra & Mahindra and Honda have all
suffered a drop in their sales during the month. The case is
similar with companies like TVS and Royal Enfield.
The country's largest carmaker Maruti Suzuki India has been
witnessing a decline in sales for the past six months and
reported a 33.5 per cent dip in total sales to 1,09,264 units in
July 2019. The cumulative sales of Hyundai Motor India fell 3.8
per cent to 57,310 units during the month.
Mahindra & Mahindra has registered a fall of 15 per cent in total
monthly sales to 40,142 units in July 2019, while the domestic
sales of Honda Cars India have dived 48.67 per cent to 10,250
units in the same month.

Implication of GST on automobile sector :-

The two expenses charged to the end buyer on auto and
bicycles right now are extract and VAT, with a normal
consolidated rate of 26.50 to 44% which is higher than the
normal rates of 18% and 28% under GST. Along these lines,
there will be less weight of duty on the end buyer under GST.
There is uplifting news for the shippers/merchants as they
would have the capacity to guarantee the GST paid on
merchandise imported/sold while as of now, they are ineligible
to assert the extract obligation and VAT paid. Extract paid on
stock exchange will be secured by IGST under the GST law.
Progress got for supply of merchandise will likewise be
burdened under GST. GST would help the producers in
acquiring vehicle parts at a less expensive cost because of an
enhanced production network component under GST.

GST will impact various sectors and industries of the country,

some in a positive way and some others in a negative way.
One sector which has the possibility of a having a very positive
impact is the automobile sector primarily because of the
efficiency and the removal of cascading associated with GST.

The constitution (one hundred and twentysecond amendment

bill,2014) related to proposedGST was cleared by
RajyaSabha.The GST is likely to have four
majorimplications.
1. Alterationin incidence of effective indirecttax across
industries
2. Expand availability on input tax credit
3. Change business dynamics betweenorganised and
unorganised sector.
4. Reduce bottleneck and improve efficiencyin supply chain
and especially road logistics.Considering above insights, the
industrywould need to do critical analysis of the law
anditsrepercussion on their business.
With regards to automobile sector which isan important
contributor to Indian economy andmanufacturing sector.
Decoding the provisionsof model GST law for this sector
would beworthwhile for the economy.

Auto – Industry contribution to GDP :-

Auto industry is said to be the engine of growth in most
developed countries, including in China and India today. Indian
automobile industry which was at its nascent stage at the
beginning of the 21st century has now become a huge industry
that contributes majorly to growth and development of Indian
Economy. As per the current statistics, the auto industry’s
turnover is estimated to be equivalent to7.1% of overall GDP
About 26% of Industry GDP About 49% of manufacturing GDP.
The industry employs 29 million people, directly and indirectly,
and contributes to 13% of excise revenue for the Government.
The Automotive Mission Plan 2006-16, a joint document of the
Government and industry has projected that the industry’s
turnover would increase from US$ 34 billion to US$ 145 billion,
an investment of US$ 35-40 billion (Rs.160,000 -180,000
crores) and 25 million additional job would be created over a
period of 10 years. The auto industry’s contribution to GDP
would rise from nearly 5% to 10%, thus making it a greater
driving force of the economy. As envisaged, the industry has
made major investments to achieve the targets set. The
industry has made investments to the tune of Rs 50,000 crores
in the last three financial years. However at the current level of
growth, the industry is expected to be just over US$110 billion,
a shortfall of about 25%. The industry was growing at the right
pace until financial year 2012 to achieve the targets set in AMP
2016. However, the industry witnessed two difficult years, FY13
and FY14, in which the segments across the industry witnessed
de-growth, carrying nearly 60% surplus production capacity.
The current change in policy environment and consumer
sentiments have brought the industry out from the bottoms
seen during the last two financial years.
DATA ANALYSIS AND INTERPRETATION

In the process of Data Analysis and Interpretation , the data

which is collected is analysed by using various statistical or
logical techniques to describe , illustrate and evaluate the data.
Data analysis summaries the collected data by using graphs ,
tables etc.

Tax at the time of buying a car:-

Tax type Percentages Collectors

Excise Duty 12% , 24% , 27% Central Government
( depending on the
size of the car )

Infrastructure 1% to 4% Central Government

Cess
VAT 12.5% to 14.5% State Government
Road Tax 3% to 24% State Government
Entry Tax 4% State Government
  So, the total tax amounts to 32 % to 35 % if we calculate
all the current taxes. Since around 17 taxes will get
subsumed in the GST.

HOW CAR WILL COST LESS POST - GST

Maruti Swift Honda City

Petrol Petrol
Pre – Price 100 100
GST Central 12.50% 13 27% 27
Excise Duty

Infrastructure 1% 1 4% 4
Cess

Freight 5% 5 5% 5
Insurance 2% 2 2% 2
Octroi 4.50% 5 4.50% 6

VAT / CST 13.50% 17 13.50% 19

Total 143 164
Post – Price 100 100
GST
Freight 5% 5 5% 5
Insurance 2% 2 2% 2
GST 28% 30 28% 30
Total 137 137
IMPACT Change over -4.2 -16.3
pre – GST
price

PRE – GST

MARUTI SWIFT CONTROL

12.50%
13.50%

1%

4.50%
5%
2%

CENTAL EXCISE DUTY INFRASTRUCTURE CESS FREIGHT INSURANCE OCTROI VAT / CST
 HONDA CITY PETROL

13.50%

27%

4.50%

2%

5%
4%

CENTRAL EXCISE DUTY INFRASTRUCTURE CESS FREIGHT INSURANCE OCTROI VAT / CST

POST - GST

MARUTI SWIFT PETROL

5%

2%

28%

FREIGHT INSURANCE GST

 HONDA CITY PETROL

5, 14%

2, 6%

28, 80%

FREIGHT INSURANCE GST

Impact of GST in various segments of car:

Small Cars
India is basically a small car market and it will continue to
remain so. India’s largest car maker Maruti Suzuki’s chairman
RC Bhargava said that small compact cars in the range of Rs
5-8 lakhs account for more than three-fourths of the car market.
With GST, automobile manufacturers, especially price-sensitive
segment carmakers, are slightly apprehensive with the changes
that GST will bring. But, the rates that have been fixed for
different car segments in the process of running GST have
shown that the there will not be much difference in prices for
small cars, come July 1. There might be a slight rise in price at
the initial phase but at the same time more schemes and offers
will be offered in smaller cars, thereby maintaining a
sustainable demand. At present, the current effective tax is
29% on small cars (VAT plus excise plus cess). With GST, the
rate will be 28% plus 1% cess for petrol cars (and 3% for
diesel). This won’t be much of a change from the present tax
rate.
THE PROS AND CONS OF GST ON
AUTOMOBILE SECTOR:

1.Taxation and variation in price of automobile

According to ICRA research, there is noclarity on the rate
of taxation but it is predictedthat tax benefit can be availed
by small car andtwo-wheeler segment and reduced price
wouldultimately boost the demand whereas bigger carsand
SUVswould have to pay high tax . .Accordingto
ICRAviewpoint there could be 8-10%decreasein vehicle rate if
GST turn out to be 18%.

2. Input tax credit

It means at time of paying tax on output youcan reduce the tax
already paid on input.Undermodel GST law capital goods
covers only thosegoods which are used at the place of
business ofsupply of goods’ thus only goods which are usedin
place of business of OEMs seems to be eligiblefor availing
input credit.So, this poses achallengeto the OEMs in
availing credit to thetools in the vendor premiseonwhich
cost isrecovered by vendor. Thus, either cost of toolingwould
increase for OEMs or they will have tofind out some
alternative in the form of in-housedevelopment.

3. Unified market
With the introduction of GSTwhole countrywould be treated as
one market as price of theproduct would be same
everywhere due toremoval of cascading effect of taxation
undermodel GST law.

4.Job work and GST

Job work is processing the goods suppliedby principal to
complete a part or whole of theprocessGST law allow
principal to send taxablegoods without paying taxes to job
worker andmust be bought back to principal in 180 days.
5. Time of supply for payment of GST
Under GST the liability for payment of CGSTand SGST will
arise at the time of supply of goodsat earliest of :
• Date of removal of goods
• Date on which goods are available torecipient
• Date of invoice
• Date of receipt of payment with respect tosupply
• Date of receipt of goods as shown in thebook of
account of recipient

6. Dealer incentive scheme and GST

Dealer incentive schemes are not subject toVAT, but there
are issues on applicability ofservice tax on dealers,
depending on the terms ofeach scheme. The industry is of
the view thatthese schemes are not an independent service
bydealers to the manufacturers, but are in the natureof post-
sale discounts. The Model GST law doesnot provide as to
whether these incentives ordiscounts are subject to GST.
Further, since theoriginal supply would have already suffered
GSTand the buyer would have taken the input taxcredit,
the issue of whether these incentives/discounts would
impact the price and credits, orwill these be kept out of GST (in
the VAT chain),needs to be addressed. This requires a
deeperanalysis. Further, in case such schemes are subjectto
GST, whether the same would be treated as aservice or
goods is also another aspect that needsto be clarified.

7. Impact of GST on logistics

Model GST law is expected to ease out thevarious
bottlenecks and complexities involved intransportation of
goods using road logistics.

8.GST is yet to provide clarity on taxation for excise duty

or vat exempted manufacturing unit
Under the proposed GST regime treatmentof exemption is
not clear at present. However,industry expect that existing
unit would mostlikely to reap benefit till the scheme
expire.AshokLeyland and hero MotoCorp is burning example.

9. Stock in the hands of dealer on thetransition date –

possible double taxation
The transition provisions provide that creditbalances
admissible under the present regimecan be carried forward
under GST. In case ofstocks lying with dealer which is
procured onpayment of excise duty and CST, such excise
dutyand CST is not admissible as credit under thepresent
regime. Accordingly, the transition ofsuch taxes/ duties
included in the stocks lyingwith the dealer has to be
allowed. Otherwise,under the GST regime, such stocks
would suffertax again, i.e. excise duty and CST paid, and
CGSTand SGST on supply after the appointed date.

10. Lack of clarity on MOU incentives

The investments by automobile companiesare significant, and
have a multiplier effect on theState’s economy. Generally,
States provide forvarious incentives including
InvestmentPromotion Subsidies (IPS). A majority of
theautomobile manufacturers enjoy special benefitsfrom the
State Government in the form of StateInvestment Promotion
Subsidies (IPS). This isgiven in the form of refund of VAT/
CST paid, or as a loan.
With the introduction of GST, taxes movefrom the Origin
State to the Consumption State.This would result in significant
reduction of flow-back of IPS, since GST on inter-state sales
is notcredited to the Origin State. Growth drivers haveturned
supportive across segment
CONCLUSION :-
India has many taxes in place like excise, sales tax, service tax,
entertainment tax, VAT etc. These taxes are divided at Central
as well as state level. These bundle amount of taxes are
difficult to manage and sometimes causes inconvenience to
businesses and customers. GST aims to solve it with single
indirect taxation system.
GST has been the buzzword in the country for the last few days
and finally the bill has passed, leading to the realization of “One
country, one tax”, at least on papers for now.
Goods and Services Tax Network (GSTN) is a nonprofit
organization formed to create a platform for all the concerned
parties i.e. stakeholders, government, taxpayers to collaborate
on a single portal. The portal will be accessible to the central
government which will track down every transaction on its end
while the taxpayers will be having a vast service to return file
their taxes and maintain the details. The IT network will be
developed by private firms which are being in tie up with the
central government and will be having stakes accordingly.
While overall the industry is looking forward to the introduction
of GST, more will be clear only when the actual tax rate under
the new Bill has been decided. The exclusion of petrol and
diesel from the GST umbrella may be another concern as
otherwise prices would have come down. However, as states
have correctly pointed out, petroleum related products (and
alcohol) as the biggest source of revenue for state
governments, maybe this is for the better.
Nevertheless, automobile industry is looking forward to
introduction of GST. However, there are quite a few concerns in
the draft Model GST law, including some of the key aspects
highlighted above, which need to be addressed. Restrictions
and conditions on eligibility to tax credits on assets used for
business is also a major area of concern, and the credit
mechanism should be more liberal.