Back To Pre-GST: SUVs, Luxury Cars Will Get Dearer With 25 Per Cent Cess

Increase in cess will fix ‘anomaly’ that crept in while deciding tax slabs for vehicle categories, but will also raise vehicle prices closer to pre-GST numbers

Buyers of high-end cars and SUVs who had been a happy lot in paying lower tax after the rollout of Goods and Services Tax (GST) earlier this year stand to lose their grins soon. To mitigate an ‘anomaly’ in the tax structure for SUVs and luxury cars, states and the central governments plan to increase cess on these categories of vehicles from 15 per cent to 25 per cent. To other buyers’ dismay, this hike in cess will also be applicable to cars falling under the midsize and hybrid categories. The increased cess leads to total indirect taxes and overall car prices very close (within 2 per cent) to the pre-GST numbers, meaning that the post-GST price cuts by various vehicle manufacturers could be rendered useless.

On August 5, the GST Council decided that cap on the compensation cess would be raised to 25 per cent from the current 15, through an amendment to the GST (Compensation to State) Act, 2017.

WHAT AND HOW? 

Under the current tax structure implemented from July 1, SUVs and luxury cars defined as being more than 4 metres in length, and with engine capacity greater than 1,500cc attract GST of 28 per cent and cess of 15 per cent for total indirect taxes of 43 per cent.