It is pretty clear by now that the new Goods and Services Tax regime simplified the GST Return process considerably for a lot of businesses and individuals. That said, it did incorporate specific tax regimes that lay heavy on the consumer. One such rule is the tax applicable on cars with a price tag of INR 10 lakh or more.
How Much Tax To Be Paid On A New Car Purchase?
The government clarified early in 2019 that when an individual buys a car that is worth ten lakh or more, he or she will need to pay extra GST according to the new rule set by the Central Board of Direct Taxes (CBIC). The customer will shell out:
- GST on the invoice value
- And additional GST on tax collected at source (TCS)
What Did The New Circular On Car Tax Mention?
In Jan, CBIC released a circular that stated the taxable value of a car (for GST purposes) includes TCS amount which is collected within the provisions provided in the Income Tax Act. This is applicable because “the value to be paid to the supplier by the buyer is inclusive of the said TCS.”
As a clarification, the circular quoted Section 15(2) of the CGST Act. The section states that the value of supply includes:
- All taxes
- Duties cesses
- Fees and charges
These are applicable for any law which is in force at the given time barring:
- SGST Act,
- UTGST Act
- GST [Compensation to States] Act
To back the new rule furthermore, two previous vide notifications were used. Dated 13th October 2017, the first notification was numbered 36 – Central Tax (Rate) and the second notification was 37 – Integrated Tax (Rate). They mention that it has already been notified that inter and intra-state supply by the Central Government, State Government, Union territory or a local authority to any registered person is subject to GST on a reverse charge basis according to which the recipient of the supplies pays the tax. The supplies include:
- used vehicles
- waste and scrap
- old and used goods
- seized and confiscated goods
What Does The Additional Tax Imply?
The new order basically means that the customer pays GST on the value of tax that is collected by the car seller. Till now TCS was applied on vehicles that had a price point of over INR 10 lakh. The rate was 1%, and it was implemented on the ex-showroom price of the automobile. The ex-showroom price generally included all applicable GST.
Will the change impact any other industry?
Without a doubt, the automobile sector will see a hit with this clarification because the price of obtaining scrap material will now be taxed additionally. But it is not the only industry to see an adverse effect. Other sectors will also feel disruption. One of which is the telecom industry because the sale of scrap in the tower business will have GST and TCS applicable. Mineral and coal sectors are also believed to be impacted under the new directive.
What’s the conclusion for car buyers?
Predictions say that the sales of car will plunge steeply with the new rule in place. GST return experts and tax pundits say that the order and clarification are incomprehensible. As per them, it is an industry practice not to include TCS when GST is computed. Including TCS in tax just puts an additional burden on the customer. In the long run, the extra taxation will burden the customers, which will lead to lesser sales. Consequently, the entire automobile industry will see a slowdown.
The experts also point out that the tax collected at source is gathered by the seller, and it is deposited on behalf of the buyer. It implies that, ideally, it should not be subjected to GST.
It is not just levying of additional tax which is harrowing; it is the process too. Already the procedure of buying a vehicle is complicated and takes time. Adding more tax to the price puts the total cost of the automobile further beyond the reach of the customer and turns the process convoluted.