If you are planning to buy a two-wheeler or motorcycle in India, understanding the Goods and Services Tax (GST) can help you make an informed decision. GST impacts the final price of the vehicle and varies based on the category of the two-wheeler you choose. The GST on two-wheelers/motorcycles has been a subject of much debate and evolution over the past few years, with new tax rates and policies introduced as recently as 2024.

In this blog, we’ll break down the GST tax rates on two-wheelers and motorcycles, explain the HSN (Harmonized System of Nomenclature) codes, and give you a clear idea of how this impacts your purchase. We will keep things simple, so you can understand the basics even if you’re not a tax expert. Let’s dive in!

What is GST and Why Does It Matter?

GST (Goods and Services Tax) is a comprehensive indirect tax that has replaced many of the older, complex taxes like VAT, excise duty, and service tax. It simplifies the tax structure into a single tax system and applies to most goods and services in India, including vehicles.

For two-wheelers and motorcycles, GST directly impacts how much you end up paying when you buy the vehicle. The GST rate is added to the ex-showroom price of the vehicle, meaning it’s a significant part of the final price you pay at the dealership.

Understanding the tax rate applicable to two-wheelers helps you:

• Know how much you’re paying in taxes.
• Compare different vehicles based on their post-GST prices.
• Avoid any surprises at the time of purchase.

Let’s now take a closer look at the current GST rates for two-wheelers and motorcycles in 2024.

GST Rates on Two-Wheelers/Motorcycles in 2024

The GST rate on two-wheelers and motorcycles in India depends on the engine capacity. The government classifies these vehicles into categories, and each category has a different tax rate.

1. Motorcycles with Engine Capacity below 350cc

• GST Rate: 28%
• Cess: None

Motorcycles with an engine capacity of less than 350cc are subject to 28% GST. There’s no additional cess (an extra tax on certain goods) on these motorcycles, making this category a more budget-friendly option for buyers.

2. Motorcycles with Engine Capacity above 350cc

• GST Rate: 28%
• Cess: 3%

For motorcycles with a larger engine capacity, i.e., those above 350cc, the GST rate remains the same at 28%, but a 3% cess is added to the price. The higher cess on bigger motorcycles reflects the luxury nature of these vehicles, as they are seen as premium products in the market.

3. Electric Two-Wheelers

• GST Rate: 5%
• Cess: None

Electric two-wheelers enjoy a significantly lower GST rate of just 5%. This reduced tax rate is part of the government’s push to encourage the adoption of electric vehicles (EVs) and move towards more environmentally friendly transportation. Electric two-wheelers do not attract any additional cess, making them a cost-effective option from a tax perspective.

Quick Recap of GST Rates:

• Motorcycles under 350cc: 28% GST
• Motorcycles over 350cc: 28% GST + 3% Cess
• Electric Two-Wheelers: 5% GST

What Are HSN Codes and Why Are They Important?

Every product, including two-wheelers, is assigned a unique HSN (Harmonized System of Nomenclature) code. These codes help in identifying and categorizing products systematically for taxation purposes. HSN codes play a crucial role in GST filings, as they ensure that the correct tax rate is applied to the right product.

Here are the key HSN codes used for two-wheelers and motorcycles:

• HSN Code for Motorcycles under 350cc: 8711 20 10
• HSN Code for Motorcycles over 350cc: 8711 20 90
• HSN Code for Electric Two-Wheelers: 8711 60 00

When filing for GST or when making a purchase, these codes help dealers, manufacturers, and consumers ensure that the correct GST rate is applied. Understanding these HSN codes can save you from confusion and ensure compliance.

Why Do Larger Motorcycles Attract Extra Cess?

As mentioned earlier, motorcycles with engine capacities over 350cc attract an extra 3% cess. But why is that?

The government considers these motorcycles to be luxury items. The idea is that people who can afford high-end, high-powered motorcycles can afford to pay a little extra in taxes. The 3% cess is a way to balance the tax burden across different categories of buyers.

While the cess may seem like an additional cost, it’s important to understand that it only applies to motorcycles that already have a high price tag due to their larger engines and premium features.

How GST Affects Motorcycle Prices

When you go to buy a motorcycle, you’ll notice that the price is broken down into several components: the ex-showroom price, road tax, insurance, and GST. The GST is a significant chunk of the final price you pay.

For example, if the ex-showroom price of a motorcycle under 350cc is ₹1,00,000, then with the 28% GST rate, you would be paying an extra ₹28,000 in taxes, making the total price ₹1,28,000 (excluding insurance and road tax).

For a motorcycle with an engine capacity over 350cc and priced at ₹2,00,000 ex-showroom, the calculation would look like this:

• Ex-showroom price: ₹2,00,000
• GST (28%): ₹56,000
• Cess (3%): ₹6,000
• Total Price (Excluding other costs): ₹2,62,000

This example shows how GST and cess together impact the final price you pay when buying a motorcycle, especially when you’re purchasing a premium bike.

Benefits of Lower GST on Electric Two-Wheelers

One of the biggest shifts in the two-wheeler market in recent years is the growing popularity of electric vehicles (EVs). To promote this shift, the Indian government has implemented a lower GST rate of 5% on electric two-wheelers. This significantly reduces the cost of purchasing an electric scooter or motorcycle.

Electric two-wheelers not only save you money on GST but also offer other long-term benefits:

• Lower running costs: Electricity is cheaper than petrol, so running an electric vehicle is more affordable.
• Government subsidies: The government also offers incentives and subsidies for purchasing electric vehicles, further reducing the cost.
• Eco-friendly: Electric two-wheelers are better for the environment, producing zero emissions.

If you’re considering switching to an electric two-wheeler, the lower GST rate is an added incentive to make the jump.

Impact of GST on Second-Hand Two-Wheelers

GST also affects the second-hand two-wheeler market. If you’re buying a used motorcycle from a dealer, the dealer will charge you GST on the margin price. The margin price is the difference between the buying price and the selling price of the vehicle. GST on second-hand two-wheelers is generally around 12%, which is lower than the rate for new motorcycles.

This lower tax rate makes buying a second-hand two-wheeler an attractive option for those looking for budget-friendly transportation.

GST and Input Tax Credit (ITC)

If you’re a business or a self-employed individual buying a two-wheeler for business use, you may be able to claim Input Tax Credit (ITC) on the GST you’ve paid for the vehicle. However, there are specific conditions:

• The vehicle must be used for business purposes.
• The ITC can only be claimed if the vehicle is used for activities like delivery, logistics, or as part of a fleet.

ITC helps businesses reduce their overall tax liability by allowing them to claim credit for the GST paid on purchases. This can be a significant benefit if your business relies heavily on transportation.

What Does the Future Hold for GST on Two-Wheelers?

In recent years, there have been discussions about reducing the 28% GST on two-wheelers to make them more affordable, especially for middle-class buyers. While no changes have been implemented yet, the Society of Indian Automobile Manufacturers (SIAM) has been lobbying for a reduction in GST rates for motorcycles and scooters under 350cc. The idea is to boost sales, which have seen ups and downs due to economic factors and the rise of electric vehicles.

In the near future, we may see the government reconsider the tax structure for two-wheelers to make them more affordable, especially for everyday commuters.

Conclusion

Understanding the GST rates and HSN codes for two-wheelers and motorcycles is essential if you’re planning to buy one in 2024. With a 28% GST on most motorcycles and a 5% GST on electric two-wheelers, these taxes play a big role in determining the final price you pay.

For buyers, especially those considering electric two-wheelers, the lower GST rate is a huge advantage. On the other hand, larger motorcycles with over 350cc engines do attract an extra 3% cess, making them slightly more expensive.

By being aware of these tax implications, you can make a more informed choice when purchasing your next two-wheeler. Whether you’re looking for a fuel-efficient scooter or a high-powered superbike, understanding the impact of GST will help you plan your purchase better and avoid any unexpected costs.