Big discounts ahead of GST 2.0: Firms eye fresh demand, clear old stock

Mumbai|Kolkata: Diwali is arriving early for shoppers as manufacturers, retailers and ecommerce platforms begin to roll out prices as per revised goods and services tax (GST) rates - even before they take effect September 22 - for cars, TV, ACs, apparel and footwear to help trade partners clear out pending inventory. This will also help reduce ballooned GST input credit on unsold stock.

Mahindra & Mahindra has slashed prices across its range from this weekend, offering reductions of up to ₹1.43 lakh, it said on Saturday. To shield its channel partners, M&M has agreed to absorb 70% of the impact, an industry executive said.

Other carmakers, especially with dealers that have paid a high cess on premium models, could resort to a similar move, said analysts. All carmakers that have a portfolio dominated by models that are longer than 4 metres and therefore come in the high-cess bracket have no option but to follow what M&M has done, said an analyst. "They (manufacturers) cannot antagonise dealers just ahead of a crucial festive season."


Clearance Discounts
A back-of-the-envelope calculation suggests Mahindra could lose ₹300,000 as cess on each unit of the Scorpio if the existing stock isn’t sold by September 22, he noted. With its length at 4.6 metres and engine displacement exceeding 2 litres, the model attracts the peak tax rate (including cess) of 50% currently.

Other carmakers such as Tata Motors, Renault and Toyota Kirloskar Motor India have announced they will be passing on GST 2.0 benefits in full from September 22.

For the interim period, some have also increased consumer benefits on the models to liquidate stock before the rollout of revamped GST. Market leader Maruti Suzuki is offering discounts of up to ₹45,000 on bookings till September 15. This is in addition to exchange bonuses, waivers on processing fees etc. on models that it sells through the Nexa premium showrooms.

The move follows Central Board of Indirect Taxes and Customs (CBIC) chairman Sanjay Agarwal’s clarification that the cess burden on pre-GST auto stocks must be shared between manufacturers and dealers, ruling out refunds on existing inventory.

According to dealer estimates, a total of ₹2,500 crore of cess has already been paid on unsold inventory.

Depending on the fuel type, engine size and length, cess on the existing car inventory ranges from 1-22%, apart from 28% GST, taking the total tax burden to 29-50%. This has been brought down to 18-40% from September 22.