If you’ve been eyeing that premium car or an SUV for some time now, prepare to write a bigger amount on that cheque. The Union Cabinet today approved a 10% hike in the Goods and Services Tax (GST) cess, applicable on luxury cars and SUVs. Where the earlier cess was agreed upon at 15%, the hike has taken it up to 25% now. The decision to make the change came in after the GST Council recommended the Central Government, which in turn moved a legislative amendment to increase the upper limit of the cess.
This correction has happened within a couple months of the taxation system undergoing much-needed reforms. The proposal came in after the Council realised that post the implementation of GST, the amount of tax on motor vehicles was lower, compared to the amount that applied before the 1st of July. For the consumer though, this hike will result in yet another dramatic change in prices.
To simplify the situation for our readers, under the original GST gambit, cars were to be taxed at a flat rate of 28 percent, with an additional cess ranging from 1 to 15 percent to be levied, depending on the vehicle’s category. For example, small petrol cars which did not exceed 4 metres in length used to be levied 31.4% tax before implementation of GST. After July 1st, a flat rate of 28% + a 1% cess meant that vehicles in this category were charged a 29% tax, which will remain unchanged even after this new approval. The hike in cess does not affect small diesel cars either as they will continue to fall in the 31% bracket (28% base +2% cess) However, mid-size cars (City, Ciaz) which exceed a length of 4 metres and are powered by engines smaller than 1,500cc will get expensive. Where the tax applicable for such vehicles stood at 43% (28% base +15% cess) post GST, the new amendment will hike the cess by an additional 10%, taking it to 53%.
Sedans and SUVs whose lengths exceed 4 metres and are powered by engines bigger than 1,500 cc will also witness a 10% hike in cess from the current 43% (28% base +15% cess) bracket. Hybrids haven’t been spared either and they will also attract the 10% hike from the current 43% (28% base +15% cess). Although the cabinet has approved the hike, a meeting will be held by the GST Council on the 9th of September to announce the date of implementation and the precise hike in cess.
Carmakers will then be forced to roll back the price cuts they had announced after implementation of the new tax regime. If you are about to make a purchase and are waiting for the festive season to benefit from discounts, we’d suggest you celebrate Diwali a little early this year.