A taxing question India can’t resolve: What’s an SUV? (2024)

How are cars taxed today?

All automobiles are taxed at 28% under the goods and services tax (GST) but there is also a compensation cess. SUVs attract the highest cess of 20-22%. But the definition is vague. Currently, there are four parameters a car must fulfil to qualify for the highest cess—it should be popularly known as an SUV with more than 4 metres length and ground clearance of 170 mm or more. The engine size must be more than 1.2 litre (petrol) or 1.5 litre (diesel). The first condition has led to confusion, leading to some states like Haryana alleging tax evasion by automakers.

What is the confusion about?

A vast majority of Sports Utility Vehicles on the roads today do not fulfil all the four conditions and hence are not taxed as SUVs. In fact, the new range of small SUVs are taxed like small cars (cess 1-3%). There are exceptions. The Mahindra Thar, which doesn’t meet two of the four conditions (length and size of engine), still attracts 20% cess. However, multi-utility vehicles (MUVs) like Kia Carens and Maruti Ertiga meet three of the four conditions mentioned above. But because they are not popularly seen as SUVs, the rate of cess is 17%—a slab originally kept for big sedans.

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How are SUVs defined globally?

There’s no fixed definition. But in most mature markets, only vehicles that have four-wheel drive capabilities—where all four wheels are powered, giving them all- terrain capabilities—are known as SUVs. In India, most cars, including SUVs, are front-wheel drive and would not qualify as SUVs in global markets. Less than 5% of cars on Indian road are 4W drive.

What about electric and hybrid SUVs?

The taxation is simpler for future technologies, with no slabs whatsoever. All electric vehicles (EVs) in India, irrespective of size or ground clearance, are taxed at 5%. Small hybrid vehicles attract no cess above the 28% GST rate while big hybrid vehicles, like the recently launched Maruti Grand Vitara, attract a flat 15% cess. This is one reason manufacturers like Mahindra are eager to bring in bigger EVs as, unlike combustion engine vehicles, there is no taxation benefit for launching smaller cars and SUVs.

What does the industry want?

For now, it wants a status quo with no change in the definition and a continuation of the relatively lower rate for MUVs. The argument is that MUVs are often used as public transport in semi-urban and rural parts and should not be taxed highly. For the long-term, manufacturers are in favour of a technology-agnostic and emission-based tax, where cleaner vehicles, irrespective of their size and shape, are incentivized with lower taxes. Those that emit more could be penalized with higher taxation.