The commencement of the Next-Gen GST, also known as GST 2.0, has brought about considerable changes in the automobile industry. With the updated tax slabs now relevant, the abolition of cesses, the purchase of cars has now become more affordable, which directly affects the next-gen GST car loan pricing, GST 2.0 car loan EMI and the overall GST impact on car loans in India. The buyers now naturally ask: Will the car loans become cheaper under the GST 2.0? Let’s break it down for them:
What Changed with GST 2.0 for Cars
| Category | GST 1.0 (Old System) | GST 2.0 (Next-Gen System) | Impact on Prices | Example Effect |
| Small Cars (Petrol, LPG, CNG ≤ 1200cc; Diesel ≤ 1500cc; Length ≤ 4m) | 28% GST + cess | 18% flat GST | Prices down by 8–10% | Hatchbacks & compact cars are cheaper by INR 40,000–INR 70,000 |
| Luxury & Large Cars | 28% GST + cess (up to 22%) | 40% flat GST (cess removed) | Net price drops despite a higher slab | Premium sedans/SUVs are cheaper by INR 80,000–INR 1,00,000 |
| Overall Industry Trend | Higher ex-showroom costs | Streamlined, lower effective taxes | Automakers passed on savings to buyers | Hyundai, Mahindra, Toyota, and Honda reduced prices |
Insight: The decrease in car costs has directly reduced the loan principles. Therefore, the car loan prices after GST have effectively been lower for many buyers.
GST’s Direct Impact on Car Loans
It is important to note that:
- GST is not applied to EMIs or interest rates. Monthly EMIs themselves are tax-free.
- Processing fees and prepayment charges still attract 18% GST.
- The main advantage comes from lower car prices, which reduce the loan amount and, in turn, the EMI.
This indirect benefit explains the GST effect on auto loans.
Car Prices & Loan Impact: Before vs After GST 2.0
To understand the practical impact on loans, here’s a comparison table:
| Car Segment | Price Before GST 2.0 (₹) | Price After GST 2.0 (₹) | Loan Amount (80%) Before (₹) | Loan Amount (80%) After (₹) | Approx. EMI (5 yrs @ 9% p.a.) Before (₹) | Approx. EMI After (₹) |
| Small Hatchback | 6,00,000 | 5,40,000 | 4,80,000 | 4,32,000 | 9,970 | 8,970 |
| Compact SUV | 12,00,000 | 10,80,000 | 9,60,000 | 8,64,000 | 19,940 | 17,940 |
| Premium Sedan | 20,00,000 | 19,00,000 | 16,00,000 | 15,20,000 | 33,230 | 31,600 |
| Luxury SUV | 40,00,000 | 38,50,000 | 32,00,000 | 30,80,000 | 66,460 | 63,930 |
Key Takeaways:
- Lower Principal, Lower EMI: Through this table, it can be seen that a 10% reduction in car price can save the buyers INR 1000-2000 per month on EMIs.
- Small Cars Benefit Most: The hatchbacks and the compact SUVs are seeing a deep drop in price because of the 18% GST slab.
- Luxury Cars Also Gain: Even with the 40% slab, removal of cess reduces overall cost, slightly lowering EMIs.
- Processing Fees Still Taxed: Ancillary fees remain under 18% GST, so no change there.
Market Trends Post GST 2.0
- Booking surges have been observed, especially for hatchbacks and compact SUVs.
- Banks reported loan cancellations ahead of the revised rates as buyers waited for lower post-GST prices.
- Automakers passed on most of the tax reduction to customers, directly reducing loan principals.
This demonstrates that the GST impact on car loans in India is already visible in real-world market behaviour.
Conclusion: What Buyers Should Expect
With the introduction of GST 2.0 in India, the purchase of cars has become more affordable across various segments. Since the car loan EMIs are measured based on the vehicle price, the buyers will be indirectly on the profitable side, as now there will be lower GST 2.0 car loan EMIs.
- The small cars and the mid-range SUVs are seeing the most significant EMI reductions.
- However, GST does not affect the interest rates, but a lower principle amount has now reduced the total financial burden.
To have a comprehensive insight, the next-gen GST car loan scenario in India has become favourable. Lower car prices mean smaller loans and lighter EMIs. Thus, making car ownership more accessible and financially comfortable for the buyers.
So if you want to purchase a car and are looking for a financial institution to provide car loans at affordable rates, then GoFinance is the one-stop solution for you.
