Why Buying a Car is a Major Financial Decision
For everybody, a car purchase is a more Prestigious thing and people are thinking like we achieved some thing. More Emotional attachments are entangled with car buying.
The costs of owning a car are pretty serious up front and ongoing. Knowing what they are will let you make a more informed decision that will not only suit your wallet better but also your lifestyle.
Now, for most of us middle-class Indians, buying a car is a big deal. Most people take out loans or go for EMIs to buy our dream set of wheels. Well, let me tell you something: cars are depreciating assets—I mean, they lose value like nobody’s business the moment you drive them off the showroom floor. Well, that is only the beginning of all those expenses! Cars can be regarded as one of the major milestones that may affect, to a substantial extent, personal finances.
Be it a brand new car, leasing, or a used car, that decision needs to be very informed. Learn all about buying your very first car from this elaborate detailed guide by I4N. This shall contain the hidden charges, taxation, leasing options, and how a new car differs from a used car.
Define Your Needs
- Use of the car: daily commute, family, or for road trips.
- See how many passengers you would have to accommodate.
- Cargo and storage requirements
- Key features: fuel efficiency, safety ratings, infotainment system, etc.
Set Your Budget
- Work out a down payment and your budget for the car payment, insurance, fueling, and monthly servicing costs.
- Whether to purchase new or used
- Financing form to acquire: Loans and lease and preapproved if needed
Research and Compare Models
- Make a list of probable cars based on needs and budget.
- Read the expert reviews, consumer reports, and owner forums.
- Compare ratings of safety, fuel efficiency, reliability scores, and resale value for the shortlisted cars.
- Test drive top contenders in comfort, performance, and overall fit.
Negotiate the Best Deal
- Research pricing guides and dealer invoices for real market value
- Incentives, rebates, and dealer discounts
- Shop multiple dealerships and play them off one another with quotes in hand
- Think total cost of ownership—not sticker price
Financing and Insurance
- Compare the interest rates and terms from banks, credit unions, and dealerships if financing
- Know the difference between leasing and buying
- Research to get the best auto insurance rate and coverage
Paperwork and Delivery
- Go through the contract properly before signing. Check for the fees and warranty clauses.
- Check that everything that was agreed to, including discounts, is fully represented
- Ensure registration, licensing and insurance of the vehicle are in place before delivery.
Hidden Charges and Taxes Involved
While purchasing an automobile in India, many hidden charges and taxes increase the cost. Some of the important ones include:
Ex-showroom Price: The price of the car without any extra charges.
Registration Fees: These vary from state to state and include road tax, which may be 4% or 20% of a car’s ex-showroom price.
Insurance: Compulsory third-party insurance and optional comprehensive insurance.
RTO Charges: Regional Transport Office charges for registration, inland transport, and road safety tax.
Extended Warranty: Optional but recommended for long-term peace of mind.
Handling Charges: These are dealer fees for handling the paperwork and logistics.
Accessories: Additional costs of add-ons and accessories.
Taxes and Cess Explained: A Breakdown by Car Type (2024 Update)
The Goods and Services Tax (GST) and Compensation Cess are charged on car purchases in India. The rate is according to the type of car, engine capacity, and length. Here is the break-up:
- GST Rate: This is a flat tax applicable to all vehicles.
- Compensation Cess: This is an additional tax levied on top of GST, with rates varying based on car characteristics.
| Car Type | GST Rate (%) | Compensation Cess |
|---|---|---|
| Hatchback (Upto 1200cc petrol, 1500cc diesel) | 18 | 1 (Recently revised by 37th GST Council Meeting) |
| Hatchback (Above 1200cc petrol, 1500cc diesel) | 28 | Upto 22 % (depending on engine size, length, seating capacity) |
| 4 Meter Sedan | 28 | Upto 22 % (depending on engine size, length, seating capacity) |
| Sub-4 Meter Sedan (meeting specific length & engine capacity criteria) | 18 | Upto 4% (depending on engine size) |
| SUV | 28 | Upto 22% (depending on engine size, length, seating capacity) |
| MUV (Multi-Utility Vehicle) | 28 | Upto 22% (depending on engine size, length, seating capacity) |
| Luxury Cars | 28 | 22% (highest cess rate) |
Important Note: The table is only indicative. For the latest GST and cess rates on your car model and state, please check, as they may vary.
Let’s calculate the estimated on-road price for a mid-size SUV purchased in Bangalore (Tier-1 city) in 2024:
- Ex-showroom Price: ₹ 12,00,000 (hypothetical)
- Engine Capacity: 1800cc (Petrol)
Why it matters: SUVs that meet the criteria of length exceeding 4 meters, engine capacity exceeding 1500cc, and ground clearance exceeding 170mm fall under the highest tax bracket.
GST and Cess Calculation:
- GST Rate: 28% (applicable to all SUVs)
- Compensation Cess: 22% (highest cess rate for SUVs)
On-Road Price Calculation (estimated):
- Ex-Showroom Price: ₹ 12,00,000
- GST (28% of ₹ 12,00,000): ₹ 3,36,000
- Compensation Cess (22% of ₹ 15,36,000 – including GST): ₹ 3,39,840 (rounded off)
- Registration Charges (Bangalore): ₹ 15,000 (approx.) (may vary depending on RTO)
- Insurance (assuming comprehensive for SUV): ₹ 50,000 (approx.) (varies based on IDV)
- This is an indicative price, and actual may differ based on the SUV model, location, insurance third-party or comprehensive, any additional RTO charges.
- The cess rates as per the various governments may change in future; it would, therefore, pay to ask about the prevailing rate at the time of finalizing the purchase.
Knowing the structure of taxation and estimating the on-road price will help you work out budgeting for the new vehicles.
Part II CAR buying guide coming Soon....
