Cabinet Clears Ordinance to Allow Hike in GST on Luxury Cars   

New Delhi: The Cabinet today gave its nod for hike in cess on mid-size, large cars and SUVs to 25 per cent from 15 per cent under the new GST regime.

To make it effective, the Union Cabinet, chaired by Prime Minister Narendra Modi, today gave its approval to the proposal of the Finance Ministry to promulgate an ordinance to suitably amend the Goods and Services Tax (GST) (Compensation to States) Act, 2017.

The Cabinet approval will allow to increase the maximum rate at which the Compensation Cess can be levied from 15 per cent to 25 per cent on motor vehicles for transport of not more than 13 persons, including the driver [falling under sub-headings 870210, 8702 20, 8702 30 or 8702 90] and motor vehicles falling under headings 8703 (luxury cars).

The GST Council, in its meeting held in this month, taking into consideration the fact that post introduction of the GST, the total incidence on motor vehicles [GST+ Compensation Cess] has come down vis-a-vis pre-GST total tax, incidence, and had recommended increase in the maximum rate at which Compensation Cess can be levied on motor vehicles falling under headings 8702 and 8703 from 15 per cent to 25 per cent.

The issue regarding the increase in effective rate of Compensation Cess on motor vehicles will be examined by the GST Council in due course.

After the implementation of the GST, the prices of most SUVs were cut between Rs 1.1 lakh and Rs 3 lakh. But, with the increase in cess, the cuts will be reversed.

As per the decision of the GST Council, cars attract the top tax rate of 28 per cent. On top of this, a cess of 1 to 15 per cent is levied for the creation of the State compensation corpus.