Car prices: Breaking down the numbers

So, you’ve seen an ad for a car that costs Rs 10 lakh; you get excited and rush to the dealership to make the purchase, only to find out that it actually costs Rs 11.5 lakh on-road. The sales person hands over to you an itemised bill with the total figure you’re supposed to pay. But do you know what the different amounts in the sheet mean? Are they accurate and mandatory, or is the dealer taking you for a ride? We break it down for you.

Ex-showroom

Think of the ex-showroom price as the selling price of a vehicle, but before adding the registration charges, road tax and insurance, which are mandatory to run your vehicle on the road in India. This price includes the ex-factory cost, goods and service tax (GST) and the dealer margin. All the incidental charges like road tax, cess, etc are calculated on this price.

Registration charges

Every vehicle is registered in the state of the buyer’s residence. The cost incurred towards the allocation of a unique number by the local Regional Transport Office (RTO) is the registration charge. The amount differs from state to state. Each vehicle registration number includes a state code (KA, MH, etc), area code (01, 03, etc), series code (AB, CZ, etc) and a four-digit number (0001, 1234, etc). Dealers also add the cost of number plates, smart cards and other costs to the registration charge.

Road tax

This is the tax collected to drive your vehicle on the road. Generally, it is collected once during the new vehicle's lifetime for a period of 10-15 years. The amount ranges from 3 percent to 20 percent of the ex-showroom price, across states. Dealers usually inflate this cost stating bribes, agent fees, etc so it’s important to know the road tax percentage and registration charges in your respective state to avoid being overcharged. Also make sure you check the papers and receipts.

Green cess

An after-effect of the diesel vehicle ban in Delhi and the National Capital Region (NCR), the Supreme Court introduced an additional 1 percent green cess on the ex-showroom price of vehicles with a diesel engine with capacities over 2,000cc.

TCS (Tax Collected at Source)

Dealerships levy a 1 percent tax on the ex-showroom price of all vehicles priced above Rs 10 lakh, as a statutory procedure by the Government of India, since June 2016. Buyers get a certificate for the same. At the time of filing their income taxes, this amount is credited back into their accounts.

Handling/Logistics charges

A car’s ex-showroom price includes all the costs incurred by the dealers along with their margin. Still, dealerships push the costs of transporting the vehicles from the factory until the stockyard and then to the dealership, and then onto customers. The Supreme Court of India has deemed these as illegal, and despite the Government directing dealers to waive these costs, dealers across the country continue to impose them. So, check again.

Insurance

Not only is purchasing an insurance policy for your vehicle mandatory in order to make your vehicle road legal, it also safeguards it from any untoward incident like accidents, theft, flood damage, etc. There are different types of insurance like Third Party, Comprehensive and Zero Depreciation, with the first being the cheapest to opt for and the last being the most expensive. Make sure you get the one you pay for.

Extended warranty

Cars usually come with a standard warranty from the manufacturer, capped by a time period like 2 or 3 years or certain number of kilometres. This warranty secures car owners from any manufacturing or electrical defect in the vehicle within that period. Most manufacturers also offer buyers the option to extend the warranty period. Remember, having a vehicle under warranty also helps while negotiating with a potential buyer at the time of resale. So, go for the extended warranty; it will pay for itself when you sell the car.

Annual maintenance package

Many manufacturers offer prepaid service packages for a pre-requisite period. These include the cost of servicing and maintaining the vehicle as per the manufacturer’s recommendation, at authorised service outlets only. Certain manufacturers also throw in roadside assistance, polishing, replacement of certain wear and tear parts, etc. The packages, however, are optional. And vary from good to very poor value.

Essential accessories

A clever way of pushing basic accessories like mud flaps, floor mats, etc as a package to unsuspecting car buyers. These are generally priced much higher than what would be available at aftermarket accessory stores and also include things like religious idols, car pillows, etc. which not everyone would opt for. Buyers have the option to uncheck this item from the list.

On-road price

Essentially, this is the total drive away price. The sum total of the ex-showroom price, registration charges, road tax, insurance and all the other optional costs is what makes up the on-road price. It’s in your hands whether to pay the on-road price that the sales person marks on the price list, or be the smart buyer and pay for what is essential and mandatory.