GST rates on bikes: Goods and Services Tax on Two-wheelers

If you’re planning to buy a bike, it’s essential to understand the impact of GST on your purchase. This blog will explain GST rates on bikes, how GST affects the pricing of bikes, the applicable rates, and what you need to know before making your purchase. 

GST has simplified the tax structure in India, but it can still be confusing for consumers. The introduction of GST in India has streamlined the indirect tax system, providing advantages across various industries, including the automobile and two-wheeler sectors. The GST applicable to a bike varies based on its engine capacity. 

What is GST? 

Goods and Services Tax (GST) is a unified tax system that replaced multiple indirect taxes such as excise duty, VAT, and service tax. Introduced in July 2017, GST aims to streamline the tax process and create a single market across India. It is divided into three main categories: 

  • CGST (Central Goods and Services Tax):
    • Collected by the central government. 
  • SGST (State Goods and Services Tax):
    • Collected by state governments. 
  • IGST (Integrated Goods and Services Tax):
    • Collected on inter-state transactions by the central government.

Click here to understand the 3 types of GST in India.

What are the GST rates on bikes? 

The GST rate on bikes depends on the engine capacity and type of bike. Here are the key rates: 

Bikes with engine capacity up to 350cc: These bikes attract a GST rate of 28%. This category includes most commuter bikes and entry-level sports bikes. 

Bikes with engine capacity above 350cc: These bikes are considered luxury items and attract a GST rate of 28% plus an additional cess of 3%. This category includes premium bikes and high-end sports bikes. The GST rate on scooters (scooty) in is also 28%.

CategoryGST RateAdditional CessTotal Tax 
Bike with engine capacity up to 350cc 28% None 28% 
Bike with engine capacity above 350cc 28% 3% 31% 
Electric Bike 5% None 5% 

How to claim GST on a bike purchase? 

Claiming GST on a bike purchase is primarily applicable to businesses rather than individual consumers. Businesses that are registered under GST can claim the Input Tax Credit (ITC) on the GST paid for business-related expenses, including the purchase of vehicles under certain conditions. 

Steps to Claim GST on a bike purchase 

  • Ensure GST Registration:
    • The business must be registered under GST and have a valid Goods and Services Tax Identification Number (GSTIN). 
  • Eligible use:
    • The bike should be used for business purposes. Personal use does not qualify for ITC. 
  • Maintain proper documentation: 
    • Invoice:
      • Ensure you have a valid tax invoice from the seller, which includes their GSTIN, your GSTIN, and the amount of GST charged. 
    • Proof of Payment:
      • Keep records of the payment made for the bike. 
  • Filing GST Returns: 
    • Include in ITC Claim:
      • While filing your GST returns (usually in Form GSTR-3B), include the GST paid on the bike as part of your input tax credit. 
    • Match Invoices:
      • Ensure the seller has also reported the transaction in their GSTR-1 return, which should reflect in your GSTR-2A. 
  • Utilize the Credit:
    • The claimed ITC can be used to offset your GST liability on other goods or services. 

How does GST affect bike prices?

GST impacts the final price of bikes in several ways: 

  • Uniform Taxation:
    • Prior to GST, different states had varying tax rates, leading to price differences. GST has standardized the tax rate across India, making bike prices more uniform. 
  • Input Tax Credit (ITC):
    • Manufacturers can claim ITC on the GST paid on inputs, which helps reduce the overall production cost. This benefit is often passed on to consumers, leading to competitive pricing. 
  • Luxury Cess:
    • High-end bikes with engine capacities above 350cc attract an additional cess, making them more expensive compared to lower-capacity bikes. 

How is GST on bike purchases calculated? 

Let’s break down how GST is calculated on a bike purchase with an example: 

  • For a bike with an engine capacity upto 350cc: 
    • Bike Price (Ex-showroom): INR 1 lakh 
    • GST Rate: 28% 
    • GST Amount: 1,00,000 x 28% = INR 28,000 
    • Total Price (Including GST): 1,00,000 + 28,000 = INR 1,28,000 
  • For a bike with an engine capacity above 350cc: 
    • Bike Price (Ex-showroom): INR 5 lakhs 
    • GST Rate: 28% 
    • GST Amount: 5,00,000 x 28% = INR 1,40,000 
    • Luxury Cess: 5,00,000 x 3% = INR 15,000 
    • Total Price (Including GST and Cess): 5,00,000 + 1,40,000 + 15,000 = INR 6,55,000 

What are the benefits of GST for Consumers?

  • Transparency:
    • GST has made the tax structure more transparent, allowing consumers to understand the tax component of the bike price easily. 
  • Lower Prices:
    • The removal of cascading taxes and the availability of ITC has led to a reduction in the overall cost of manufacturing, which can translate to lower bike prices. 
  • Ease of Purchase:
    • With a uniform tax rate across states, consumers no longer must worry about varying prices when buying bikes from different regions. 

Input Tax Credit on bikes 

Under GST, the availability of ITC on the purchase of bikes is subject to certain conditions and restrictions. Generally, ITC on motor vehicles, including bikes, is restricted unless they are used for specific purposes.

What are the conditions for claiming ITC on bikes?

Here’s a detailed look at the conditions under which ITC on bikes can be claimed: 

  • Usage for Business Purposes: 
    • The bike should be used for business purposes only. Personal use of the bike does not qualify for ITC. 
  • Nature of Business: 
    • Transportation of Goods or Passengers: Businesses involved in transporting goods or passengers can claim ITC on the purchase of bikes. 
  • Training: 
    • If the bike is used for imparting training on driving, flying, navigating such vehicles, ITC is available. 
  • Supply of Vehicles: 
    • If the business is engaged in the supply (sale) of such vehicles, ITC can be claimed on the purchase of bikes. 
  • Documentation: 
    • Maintain proper documentation such as a valid tax invoice, proof of payment, and ensure the seller has reported the transaction in their GST returns. 

Conclusion

In conclusion, understanding GST on bikes is crucial for making an informed purchase. With standardized tax rates, the overall process has become more transparent and straightforward. 

Whether you’re buying a commuter bike or a high-end sports bike, knowing the GST implications will help you budget better and avoid any surprises. Keep this guide in mind when you head out to buy your next bike, and ride confidently knowing you’ve made a well-informed decision. 

FAQs

1. What are the GST rates on bikes with engine capacity up to 350cc? 

The GST rate on bikes with an engine capacity up to 350cc is 28%. This rate is applicable across India and includes most commuter and entry-level sports bikes. 

2. Are there any additional charges besides the GST rates on bikes with engine capacity above 350cc? 

Yes, besides the GST rate of 28%, bikes with an engine capacity above 350cc also attract an additional cess of 3%. This makes the total tax rate 31% (28% GST + 3% cess), classifying them as luxury items. 

3. How do the GST rates on bikes affect the final purchase price? 

The GST rates on bikes directly impact the final purchase price by adding 28% (or 31% for bikes above 350cc) to the ex-showroom price.
For example, a bike priced at INR 1 lakh with a 28% GST rate will cost INR 1.28 lakhs after tax. 

4. Can businesses claim ITC on the GST rates on bikes purchased for business use? 

Yes, businesses can claim ITC on the GST paid on bikes if they are used exclusively for business purposes such as transportation of goods or passengers, or training purposes. Personal use of the bike disqualifies it for ITC. 

5. Do GST rates on bikes vary between states in India? 

No, GST rates on bikes are uniform across all states in India. The rates are set by the central government and apply nationwide. 

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