Cabinet clears Ordinance to allow hike in GST cess on cars

Prices of most SUVs were cut by Rs1.1 lakh to Rs3.5 lakh after the GST rollout on 1 July

Prices of most SUVs were cut by Rs1.1 lakh to Rs3.5 lakh after the GST rollout on 1 July

The additional one percent tax that was levied by the government on cars that cost more than Rs 10 lakh earlier in the year also drove prices up for buyers while later in the year, demonitisation saw a sharp decline in November and December sales figures.

President Ram Nath Kovind has promulgated an ordinance enabling an increase in the goods and services tax (GST) cess on motor vehicles, including medium-sized cars, large cars and sports utility vehicles (SUVs), from 15% to 25%.

The government had to opt for the ordinance route to amend the GST Compensation Cess law as parliament is not in session and the GST Council has already endorsed the amendment. Besides GST, an additional cess has also been implemented on all automobiles, ranging from one per cent to 15 per cent now depending on the vehicle and fuel type.

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The issue regarding the increase in effective rate of Compensation Cess on motor vehicles will be examined by the GST Council in due course. The Ordinance was last week approved by the Union Cabinet, headed by Prime Minister Narendra Modi, and was sent to the President for his approval. Now, this upper limit of the cess has been revised from 15 to 25 per cent. Take the midsize sedans, for example, viz. cars with large displacement engines (more than 1.5-litres), such as the new Hyundai Verna. At present, cess levied on small petrol and diesel cars at the rate of 1% and 3%, respectively, remains unchanged.

It has come into force with effect from September 2 - the date of official gazette notification.

Prices of most SUVs were cut by Rs1.1 lakh to Rs3.5 lakh after the GST rollout on 1 July. As a result, auto market leader Maruti Suzuki India Ltd's domestic sales rose 22.4% in July from a year ago. Ltd grew 21 per cent and 43 per cent, respectively, in July.

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