The Union Cabinet has approved to hike Goods and Service Tax (GST) cess on mid-size, large cars and SUVs to 25 percent from 15 percent under the new GST regime.
Effective July 1, 2017, the new tax regime (GST) came into effect and replaced several central and state levies like excise duty, service tax, and VAT.
This led to a significant reduction in prices of SUVs which witnessed price cut between Rs 1.1 lakh to Rs 3 lakh. Most of the luxury vehicles benefitted from the new tax structure as it was a reduction compared to the old tax structure. With the increase in the GST cess for sedans and SUVs, prices are set to become dearer.
So what does this mean to you?
All mid-size, large cars and SUVs will now be dearer by 10 percent compared to prices after GST. Vehicles such as Honda City, Hyundai Verna fall in the mid-size sedans, while large cars such as luxury cars from Mercedes-Benz, BMW among others will now cost more.
Also, SUVs such as Hyundai Creta, Jeep Compass will now cost 10 percent more than what it retails currently in the market. However, the price increase is not immediate as the hike in cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.
To approve a legislation or change on legislation, an ordinance has to be issued when Parliament is not in session. The ordinance has to be replaced with a proper legislation with the approval of Parliament within six months of its issuance.
So why the increase in GST cess on sedans, SUVs?
Cars attract the highest GST rate of 28 percent, and a cess of 1 to 15 per cent is levied for the creation of the state compensation corpus. As per reports, after the introduction of GST, the total tax incidence on motor vehicles (GST plus compensation cess) has decreased when compared with the total tax rate in the pre-GST regime.
To correct the irregularity, the GST Council, headed by Union Finance Minister Arun Jaitley and including representatives of all states, had on August 5, 2017, recommended that the Central government move legislative amendments required for increasing the maximum ceiling of cess leviable on motor vehicles to 25 per cent from present 15 percent.
So when can we expect the new GST cess come into effect?
Once the law is amended, the GST Council will decide on the date. The report also added that the next meeting of the panel is scheduled to be held on September 9, 2017.
Currently, large motor vehicles, SUVs, mid-segment cars, large cars, hybrid cars and hybrid motor vehicles attract a cess of 15 percent in addition to 28 percent GST.
Small petrol cars of less than 4 meters and 1200cc are levied with GST cess of 1 percent, while small diesel cars of less than 4 meters and 1500c engine attract 3 percent.
While GST has brought some uniformity to the tax structure in India, the fact that sedans, SUVs will now cost you more and probably more than the pre-GST tax structure.