Auto stocks gain sharply on expectations of GST being cut down from 28% to 18%

According to reports, the government may reduce GST on automobiles and two wheelers from the existing 28% to 18%. The Prime Minister in his Independence Day speech had talked about rolling out GST relief by Diwali.

Auto stocks are up today on this news. As at 10:48 a.m. 18^th August, Maruti and Hero Motors are among top gainers at Nifty 50. Maruti Suzuki’s stock is up by 7.46% at this time. Hero Motors is up by 6.15%. Nifty Auto index is up by 4.65%.

Currently, all PVs attract 28% GST, with compensation cess ranging from 1% to 22%. Depending on the engine capacity, body type and length, the total GST payable can go as high as 50%. On the other hand, GST for two-wheelers is also 28% but the compensation cess for models having engine capacity of 350cc or lower is nil. Any model having engine capacity more than 350cc attracts 3% compensation cess.

The likely GST relief is a part of a broader GST reform, where it is expected  that 90% of the goods currently in 28% GST slab will be shifted to 18% slab. And 99% of the goods currently in 12% GST slab will be shifted to the 5% slab. One of the main goals of the new GST reforms is to have only two GST slabs; 5% for essential goods and 18% for standard goods. However, a special 40% GST slab is expected for seven items related to luxury and sin goods, such as tobacco.

The automotive sector welcomed the announcement as it aligns with the demand of the Society of Indian Automobile Manufacturers (SIAM). SIAM has previously demanded for a 18% GST slab, which is now likely with the new GST reforms.

The reduced GST slab will benefit entry-level models in the PVs and two-wheelers category. With lower GST burden, individuals will have more spending capacity, which is expected to boost the automotive sector’s demand.

Disclaimer : This content is only for informational purpose. It does not make any recommendation to act or invest.

Source: NSE