New GST Rates Make Cars More Affordable: A Comparison Of Vehicle Loans From Top Banks

Buying a car may become lighter on the pocket, both in terms of upfront cost and monthly EMIs. The GST Council's decision under GST 2.0 to rationalise tax slabs has led to a direct reduction in car prices.

The earlier goods and services tax (GST) structure comprised four slabs: 5%, 12%, 18% and 28%. Under the recent reforms, this has been simplified to just a two-tier structure of 5% and 18%. The new GST structure will come into effect from Sept. 22.

As part of the revised structure, the tax on small cars has been cut from 28% to 18%. Larger and luxury vehicles such as SUVs will be taxed at a flat 40% rate without any cess.

Earlier, SUVs and luxury vehicles attracted 28% GST along with a compensation cess of up to 22%. The new rate, therefore, reduces the overall burden, making such cars cheaper.

Many top brands have announced rate cuts across models, following the GST reduction. A slash in prices means one can take a lower vehicle loan which, in turn, brings down the equated monthly instalments (EMIs).

For example, if you are planning to buy a mid-sized SUV and it has become cheaper by Rs 1 lakh after the GST cut, then your EMI could reduce by around Rs 1,500 to Rs 2,000 every month for a tenure of five years. Over the entire loan period, this means you will save not just on monthly payments, but also on the total interest you pay to the bank.

Take the case of a mid-sized SUV priced at Rs 15 lakh earlier. After the GST rate cuts, it is likely to cost Rs 1.5 lakh less. Let’s see how car loan EMIs will be impacted, assuming a five-year repayment tenure. 

Top banks like HDFC Bank, ICICI Bank and Axis Bank are currently offering car loans with interest rates starting at 7% per annum. If you avail a loan for the SUV at this interest rate, the EMI drops from about Rs 29,700 per month earlier (for Rs 15 lakh) to around Rs 26,700 per month (for Rs 13.5 lakh) after the GST cut. This leads to savings of nearly Rs 3,000 every month. Across the entire tenure, you will save Rs 1.8 lakh.

For Kotak Mahindra Bank borrowers, where the minimum interest rate is slightly higher at 8%, the EMI comes down from around Rs 30,400 per month to Rs 27,400 per month after the price drop for the same SUV. 

Similarly, at Canara Bank, which charges a minimum interest of 8.7%, the EMI falls from about Rs 30,800 per month to Rs 27,700 per month for car loans after the GST cut. The total savings would be around Rs 1.8 lakh over five years.