Auto Dealers Seek Early Implementation Of New GST Regime To Avoid 'Whitewash' In Festive Season

Automotive dealer's body FADA has sought early implementation of the new GST structure to avoid losses for the industry during the lucrative festive period, with customers postponing purchases amid hopes of a price cut on vehicles under the new regime.

The high-powered GST Council, chaired by Finance Minister Nirmala Sitharaman, will meet on Sept. 3-4 to discuss moving to a two-slab taxation.

In a letter to Commerce and Industry Minister Piyush Goyal, the Federation of Automobile Dealers Associations stated that the announcement has created a challenging situation at the ground level.

The industry body noted that dealers across India are currently building inventory in anticipation of the upcoming festivals -- Onam (August 26), Ganesh Chaturthi (August 27), and Navratri and Diwali (18-23 October).

"However, following the announcement of GST rationalisation, customers are postponing their purchases and explicitly asking dealers about the new rates. This deferment risks turning key festive sales into a whitewash period, with pent-up demand only materialising during Diwali after the new GST rollout," it said.

FADA sought early implementation of the re-worked GST structure.

"We request that the GST Council meeting be preponed so that the rationalisation measures can be implemented before the onset of major festivals. This would spread demand across the season, rather than compressing it only around Diwali, thereby protecting both consumer sentiment and industry health," the industry body stated.

It also sought a directive to banks and NBFCs to extend tranche periods by 30–45 days during the interim phase to prevent unnecessary stress on dealers and ensure business continuity.

Inventory is funded through short-term channel financing from banks/NBFCs, typically with a tranche period of 45–60 days, and if retail sales remain subdued until new GST rates are notified, many dealers will face serious financial stress, FADA said.

It also sought guidance on how accumulated cess credits will be utilised post-cess removal.

FADA firmly believes that the far-reaching reforms proposed by Prime Minister Narendra Modi will rejuvenate the automobile sector and accelerate India’s growth trajectory.

"At the same time, addressing the above short-term concerns with urgency will ensure that the transition is smooth, demand during the crucial festive period is safeguarded, and the entire automotive ecosystem — dealers, OEMs, component manufacturers, and financial institutions — remains resilient," it stated.

According to the reform proposed by the Centre to the GoMs, Goods and Services Tax should be a two-rate structure of 5 and 18%, classifying goods and services as ‘merit’ and ‘standard’. A special rate of 40% will be levied on select few items like ultra-luxury cars and sin goods.

Currently, GST is a 4-tier structure of 5, 12, 18 and 28%.

Presently, automobiles are taxed at 28%, which is the highest GST slab.

A compensation cess, ranging from 1 to 22%, is levied on top of this rate, depending on the type of vehicle.

The total tax incidence on cars, depending on engine, capacity and length, ranges from 29% for small petrol cars to 50% for SUVs.

Electric vehicles are taxed at a 5% rate.

FADA represents over 15,000 dealer principals who, in turn, operate nearly 30,000 dealerships across the country.