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Old 23rd December 2012, 15:27   #1
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Default Discounts : Why on the on-road price and NOT ex-showroom price?

Mods: Tried to find a thread with similar discussion, but couldnt find any. so creating a new thread. please merge with an existing thread if there is one.

I have visited many showrooms of different makes in the recent couple of days. and i noticed some wierd things happening around me. I was happy that i am getting a deal, but there was always something fishy. Let me explain.

- Offer amount will be given as follows
(Ex showroom price + Life tax + Insurance + Extended warranty & others) - discount price.

Why dont they give it on Invoice price? i tried hard with a maruti showroom, VW and with a toyota too. But they are not ready to reduce the Exshowroom price on the invoice.

If the exshowroom price remains same, then the price of Life tax is high, in which they wont be able to save anything.

If i demand that i will take insurance from outside, they said they are fine with it. So in this case, the equation comes down to.
(Ex showroom + Life tax + Extended warranty) - Discount

From the above equation, i see that, they cant save anything in the Life tax amount. Extended warranty will be provided by the manufacturer. so marginal savings over there. No handling charges, because we BHPians ask to waive it off.

This effectively means, They are giving the discount from Ex-showroom price. which also means, they are paying the tax for the invoice amount and they are giving the customer some benifit. WHY?

I see only one thing, They quote the manufacturer saying that the vehicles are sold at a price say 6 Lakh being december or other reason. Actually selling the car (@ invoice price) say 7 Lakh. The differential (7-6) is profit to the showrrom and a discount of say 20-25K which is given to the customer is BLACK money from elsewhere. Now the 1L profit is WHITE.

Are they converting the black money to white in a round robin fashion?
Are we buying car and helping them to convert black to white?

Guys, please pour in your thoughts. Am i missing anything?
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Old 23rd December 2012, 18:41   #2
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

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Originally Posted by gemi_kk View Post
Guys, please pour in your thoughts. Am i missing anything?
As far as I know you cannot discount the price of any item before tax. It always has to be after tax. The company does not benefit by this, the goverment of India does.
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Old 23rd December 2012, 19:13   #3
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

Isnt, Invoice price is fixed by company ? How can the dealer give a discount on that ? Ex-showroom is invocie + taxes (not road tax), so again, Ex-showroom price is fixed.
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Originally Posted by gemi_kk View Post
Why dont they give it on Invoice price?

No handling charges, because we BHPians ask to waive it off.
And you are lucky if you can get the handling charges waived. I have not yet heard any one who has got the handling charges waived.
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Old 23rd December 2012, 19:26   #4
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

If they give a discount, the invoice value should be reduced and the amount of insurance and registration charges should go down. However, they refuse to reduce these amounts.

Kizashi has 20% registration charges and even when they are giving a discount of 5 lakhs, they refuse to reduce the registration charges by one lakh.

There is definitely something fishy going on here. It is just that we do not know about it yet. All dealers refuse to allow the buyer to register the car, so obviously they are making a good amount of money in this area.

I feel that at some point of time a scam may come out where the registration charges received by the Govt. are lower than the ones stated in the receipts issued to car buyers.

They may be making two receipts, one for the treasury with a lower amount of tax and one for the buyer stating a higher amount.

These two copies of the receipts are never matched, so such a scam will be very difficult to unearth.

Last edited by lapsi : 23rd December 2012 at 19:29.
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Old 23rd December 2012, 19:31   #5
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

According to the law, all taxes are calculated based on ex-production plant price. Excise duty and VAT, and finally road tax. There is no discount given on tax.

I work in Pricing module (in SAP). Indian clients that I have worked with, always have a condition: whenever the price of a product (in this case, the car) is updated for different customers (in this case, the dealers), the maximum price irrespective of customer is updated in a separate table, and taxes are calculated based on that.
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Old 23rd December 2012, 21:10   #6
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

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Originally Posted by rohanjf View Post
According to the law, all taxes are calculated based on ex-production plant price. Excise duty and VAT, and finally road tax. There is no discount given on tax.

I work in Pricing module (in SAP). Indian clients that I have worked with, always have a condition: whenever the price of a product (in this case, the car) is updated for different customers (in this case, the dealers), the maximum price irrespective of customer is updated in a separate table, and taxes are calculated based on that.
Don't you love IT for these things? Most of the times we know the internals that even some of the high ranking officials will not be aware of. Coming back to the topic, it does look like a scam and I was under the impression that the ex-showroom price will be reduced and hence the reduciton intaxes as well I think, we still can take the car out without registration and do it ourselves. It's not mandatory for the dealer to do the same.
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Old 23rd December 2012, 22:53   #7
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

Quote:
Originally Posted by gemi_kk View Post
- Offer amount will be given as follows
(Ex showroom price + Life tax + Insurance + Extended warranty & others) - discount price.

If the exshowroom price remains same, then the price of Life tax is high, in which they wont be able to save anything.

From the above equation, i see that, they cant save anything in the Life tax amount. Extended warranty will be provided by the manufacturer. so marginal savings over there. No handling charges, because we BHPians ask to waive it off.
Just to share my experience, I had to pay LTT for my SX4, for which we had been previously paying annual tax. As per the company offer, we had got discounts in excess of Rs 40k when we had brought the car. This was clearly stated in the Bill. The ex-showroom price had been reduced and after that all other additionals were calculated. So, the ex-showroom price of the car was just 6.7Lakh(SX4 - ZXi). Without discount, it was close to 7.2L.

On visiting the RTO superintendent for the calculation of LTT to be paid by me, the lady considered the invoice amount WITHOUT DISCOUNT. Even though the price for the car was less, I had to pay the same road tax, ie equal to the ex-showroom price of a non discounted car!

That is how bad our system is. Technically, 14.5% of the invoice value had to be paid by me. Invoice value is 672000, but she did not take the same amount for LTT calculation.
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Old 24th December 2012, 00:20   #8
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

I think this is actually to prevent cheating.
It's equivalent to ready reckoner for the real estate.

If you are buying a flat, there is a certain minimum price (ready reckoner) that has to be paid. Even if the transaction happens at a lower price, registration tax is calculated on the ready reckoner price. So I think in case of automobiles, ready reckoner is the ex-showroom price announced by the manufacturer.

I think, until last year, the dealers were allowed to sell at lower price (lower than ex-showroom) and submit registration tax amount on the actual discounted price but the government has changed it now.
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Old 24th December 2012, 07:37   #9
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

IIRC, my uncle's Tavera got discount on the ex-show room price. This was specifically mentioned by the sales advisor to sweeten up the deal.
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Old 24th December 2012, 09:31   #10
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

How the discounts given by the dealer is black money? Isn't discount given by the dealership eats up its own margin by reducing the profit per car or even loss in certain cases.

The conversion of black money to white money by investing in dealerships is one thing and the discounts are completely different and may not involve money laundering.
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Old 24th December 2012, 11:06   #11
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

I always thought white to black was a one way street - there is no way converting black to white, unless there are some special schemes like the famous VDIS.

If ex-showroom price can be altered by the dealer, that leaves great room for cheating on taxes. Its only correct that govt doesn't allow this, although the tax rates are ridiculously high. Alternately, several things on a car can be attached at the dealer level as spares - wheels, seats, .., (like bicycles) reducing the overall cost. Wonder why no one does that!?
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Old 24th December 2012, 11:08   #12
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

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Originally Posted by 2cents View Post
Alternately, several things on a car can be attached at the dealer level as spares - wheels, seats, .., (like bicycles) reducing the overall cost. Wonder why no one does that!?
Because the government knows what parts are supplied with the car as OEM. This will not work.
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Old 24th December 2012, 11:29   #13
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

I have been having the same discussion/argument with Vitesse in Mumbai over the discount for Kizashi. In case of Kizashi, it really makes a big difference as 20% of the 5 lakh discount is 1 lakh. But no success, and it seems that the Tax will be calculated on Full ex showroom price ex discount.
But continue to get the feeling that something fishy is underway.
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Old 24th December 2012, 11:30   #14
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

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Originally Posted by audioholic View Post
Just to share my experience, I had to pay LTT for my SX4, for which we had been previously paying annual tax. As per the company offer, we had got discounts in excess of Rs 40k when we had brought the car. This was clearly stated in the Bill. The ex-showroom price had been reduced and after that all other additionals were calculated. So, the ex-showroom price of the car was just 6.7Lakh(SX4 - ZXi). Without discount, it was close to 7.2L.

On visiting the RTO superintendent for the calculation of LTT to be paid by me, the lady considered the invoice amount WITHOUT DISCOUNT. Even though the price for the car was less, I had to pay the same road tax, ie equal to the ex-showroom price of a non discounted car!

That is how bad our system is. Technically, 14.5% of the invoice value had to be paid by me. Invoice value is 672000, but she did not take the same amount for LTT calculation.
I am not sure what LTT is? i cannot comment on it. Would you please provide more information on this?

Quote:
Originally Posted by anandpadhye View Post
I think this is actually to prevent cheating.
It's equivalent to ready reckoner for the real estate.

If you are buying a flat, there is a certain minimum price (ready reckoner) that has to be paid. Even if the transaction happens at a lower price, registration tax is calculated on the ready reckoner price. So I think in case of automobiles, ready reckoner is the ex-showroom price announced by the manufacturer.

I think, until last year, the dealers were allowed to sell at lower price (lower than ex-showroom) and submit registration tax amount on the actual discounted price but the government has changed it now.
This is correct with respect to real estate because
- On a future date, your property may be required for the government for road expansion or for a Fly-over. In this case, they pay the price that is decided by the government, if not every one would demand huge inflated price. In this scenario it a necessity for the government to regulate the price if not, the whole state budget will be eaten away by politicians just for an airport expansion.
- Government grabs thousands of acres every year to encourage industries and for other requirements from people/farmers. In order to give the right price for the owners, this law was made. This ensures that no OWNER Looses his property because of the greed of government officials. (Our law runs on one principle: You may excuse a criminal but shouldnt punish an innocent. justice may be delayed but not denied.)
- This pricing of real estate helps government to calculate the networth of the country, which is projected to other countries too. so this is verymuch required.
I couldnt corelate why the tax amount is fixed on a car? Scratching my head.
Always the tax is calculated on the invoice price. Not on the landing price. The car company pays one set of tax. Car making cost + 1st set of tax + Buffer amount of 50K or 70K = Ex showroom price. On which we pay another tax called Life tax. Correct me if required.

The dealer will pay the tax based on the (invoice price (price paid by customer) - Landing price ).

Assume, the tax paid by the dealer is 30%. if the margin on a car is say
40K. If the dealer gives 30K as discount, so effectively, the dealer is paying 30% of 40K = 12000 as tax. Which is not possible.

Quote:
Originally Posted by ramzsys View Post
IIRC, my uncle's Tavera got discount on the ex-show room price. This was specifically mentioned by the sales advisor to sweeten up the deal.
I guess, this is the correct way. Thanks for sharing this information. This proves that the trade is being done either wrongly or there is something missing.


Quote:
Originally Posted by nkrishnap View Post
How the discounts given by the dealer is black money? Isn't discount given by the dealership eats up its own margin by reducing the profit per car or even loss in certain cases.

The conversion of black money to white money by investing in dealerships is one thing and the discounts are completely different and may not involve money laundering.
Assume you are the dealer and you have 100 Cr black money.
You want to covert it into white. So you start a showroom.
Your cars are not selling. You say to manufacturer and get a rebate of 20K more from them. So your landing price is 6L and ex showroom is 7L
On every car (1 lakh margin Just imagine.), you give 30K off from Black, and invoice amount is same. you are paying it from Black to the customer. You are selling the car at no discount price.
So on 1L (7L ex showrrom - 6L landing price) you pay Tax and your money is white. Down the line, the black money vanishes and you end up having All WHITE. isnt it?

If the invoice amount is reduced then, you pay 30% tax on ( 6.4 Lakh (after discounts) -6L (Landing price.) ) .
28K profit after tax roughly.

In the earlier case, 70K profit after tax. in white. so effectively you have made 70-28K white.

The basic thing, if you are into retail then you pay tax on your earnings. you need not pay any tax if you are making LOSS. if you make 10L loss then you can claim for exemption on loss made for the next 3 financial years. Case is different for manufacturers because they get some other benifits in the form of land or infrastructure or other stuff.
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Old 24th December 2012, 11:57   #15
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Default re: Discounts : Why on the on-road price and NOT ex-showroom price?

LTT - Lifetime tax. In the initial tyree years of owning the car, we were paying only yearly tax. After the government scrapped this idea, we had to pay lifetime tax for the car.
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