No hike in taxes on diesel cars, but large cars to cost significantly more

Phew! That’s a collective sigh of relief from buyers waiting for diesel cars. The government has not levied any extra taxes on diesel cars specifically. But wait, there’s still some bad news in the budget.

The government has hiked the base excise duty for small cars (measuring less than 4 meters in length) from 10% to 12%, and on large cars excise duty goes up from 22% to 24%. So what does this Union Budget proposal mean for you the car buyer?

tata manza
Photo: The excise duty for large cars with engine capacity less than 1.5-litres such as the Tata Manza has been hiked from 22% to 24%.

No additional tax on diesel cars is a relief

No additional tax on diesel cars is a big relief not just to the diesel car buyers but also for the auto industry. In January,  CarToq had reported that the government is considering levying extra excise duty on diesel cars based on proposals put forth by various committees. Many diesel car buyers hurried up their buying decisions and closed deals before the budget in order to avoid the speculated additional tax on diesel cars. However, since there in no additional tax on diesel cars, we expect buyers’ preference for diesel cars to remain unaltered. This is also a big relief for car makers, as they have invested heavily in diesel engine manufacturing capacity. Both Ford and Maruti have increased their diesel engine production capacities last year.

Excise duty for small cars hiked

Now for the bad news. The excise duty for small cars has been hiked from 10% to 12%. Small car buyers will have to shell out an additional 2% excise duty, which essentially translates into a price hike ranging between Rs. 4,000 and Rs. 16,000 for small cars with immediate effect. The precise text put out by the Central Excise department on what the Union Budget proposes states:

“Excise duty on petrol/LPG or CNG driven cars, with length not exceeding 4000 mm and engine capacity not exceeding 1200 cc is being increased from 10% to 12% and on diesel driven vehicles having length not exceeding 4000 mm and engine capacity not exceeding 1500 cc from 10% to 12%”

Following this proposal car makers have already begun to hike prices, with Tata being one of the first to announce an across the board price hike on all its models.

Excise duty for large cars, SUVs and MPVs hiked

For those of you looking to buy SUVs or large sedans, this budget is going to pinch even more. The excise duty for large cars with engine capacity less than 1.5-litres (such as the Toyota Etios, Tata Manza, Honda City etc), has been hiked from 22% to 24%. That means on a Rs. 7 lakh car, you will end up paying about Rs. 14,000 more.

However, for large cars with engine capacities of more than 1.5-litre (Toyota Innova, Mahindra XUV500, Maruti SX4 etc), the excise duty has been hiked from 22% to 27% (24% excise duty + 3% ad valorem). That means on a Rs. 20 lakh SUV, you will end up spending at least Rs. 1 lakh more!

Here’s what the Excise Department has to say: “Excise duty on petrol/diesel driven cars with length exceeding 4000 mm and engine capacity under 1200 cc is being increased from 22% to 24% and on petrol/diesel driven vehicles having length exceeding 4000 mm and engine capacity exceeding 1500 cc from 22% to 27%”.

Import duty for CBUs hiked

The import duty on completely built units (CBU) cars has been hiked from 60% to 75%. This hike applies to all imported cars whose value exceeds $40,000 (Rs. 20 lakh). Hence, imported luxury cars, be it a sedan or MPV or SUV, will have a steep price hike. That means vehicles such as the Porsche Cayenne that presently cost Rs. 62 lakh for the base diesel, will now cost at least Rs. 71.3 lakh, that’s nearly Rs. 10 lakh more!

So yes, prices have gone up across the board, but not as much as expected. And that’s a good thing!