When Taxes Go Up but Prices Come Down: The Curious Case of SUVs and Big Cars
It’s not often that you see taxes climb higher while showroom prices roll down. But that is exactly what has happened with SUVs and other large cars, including several luxury models. After the 56th GST Council meeting, these vehicles were shifted into a steep-looking 40% tax bracket from the earlier 28% tax bracket. At first glance, this should have made them more expensive. Instead, buyers are being greeted with price cuts. The result is a paradox: higher tax, lower cost.
As the old saying goes, “things are not always what they seem.” Let us dissect this.
The Old Burden vs The New Simplicity
Earlier, SUVs and big cars had to carry two kinds of taxes: the regular GST and an extra charge on top of it. This double layer made the final cost heavy and confusing. Buyers could never clearly see how much tax they were paying.
The new system has done away with the extra layer. Instead, there is now a flat 40% tax. In simple terms, the government has cleared a messy, potholed road and replaced it with a smoother highway.
Why Prices Fell Instead of Rising
1.A cleaner tax load
In the old system, the 28% tax rate plus approx 22% cess , i.e. total tax on these vehicles often touched nearly 50%. By fixing it at flat 40%, the government has reduced the actual burden. That drop is showing up directly in ex-showroom prices.
2.Using tax credits
Automobile companies also had tax credits from earlier periods. These can now be used to reduce their present liability, much like carrying forward unused mobile data to the next month. This cushions the impact and allows them to cut prices.
3.Better planning, fairer pricing
With one clear tax rate, manufacturers no longer have to juggle between different slabs. It is like shopping in a store where every item has a single “all-inclusive” price. The certainty helps companies plan better, and many are passing some of that benefit on to customers.
What This Means for us Buyers?
Luxury brands such as Mercedes, BMW and Audi are expected to show the sharpest corrections in prices. For them, the new slab is a big relief compared to the earlier total burden. But even our Indian favourites like Scorpio, XUV700, or Fortuner may become more affordable than before.
This is a reminder of the saying, “every cloud has a silver lining.” What looked like a storm for buyers — a jump to 40% GST — has surprisingly turned into a pleasant drizzle.
The Bigger Picture
The GST Council’s intent is not just about SUVs. The larger goal is to simplify India’s indirect tax system. Under GST 2.0, goods and services are being slotted into fewer and clearer categories:
Low rate for essentials and electric vehicles
Mid-range rate for mass-market goods
Higher rate for luxury and “sin” items
SUVs and big cars are now firmly in the last group. But even there, simplification has brought comfort.
Of course, not everything will be smooth sailing. Companies may not pass on the full benefit, especially if their input costs are rising. Discounts may differ from brand to brand. Electric cars still enjoy a very low 5% GST rate, which could continue to shift some buyers in that direction.
Ending note for my dear readers-
The lesson from this reform is clear: tax policy is not only about numbers, it is also about design. A higher percentage may not always hurt if the structure behind it is simpler. By replacing layers with clarity, the government has created a rare win-win — more transparency for the exchequer and lower prices for the consumer.
Sometimes, as the proverb says, “less is more.” By removing the complications, GST 2.0 has made the dream of owning an SUV or a luxury car just a little more reachable.
