With most automakers already slashing down prices on cars after the GST Council announced reforms of the Goods and Services Tax (GST) earlier this month, those who had availed car loans are approaching banks to cancel the loans and apply afresh.
The 56th GST Council meeting held earlier this month had approved substantial reductions in the GST rate on in the 1,200 cc category to 18 per cent from the existing 28 per cent. Effective September 22, petrol and diesel cars with engine capacities of up to 1,200 cc and 1,500 cc will attract 18 per cent GST, while those above that will attract the highest 40 per cent ‘sin’ tax. Meanwhile, compensation cess on automobiles will cease to exist effective September 22, when the new rates come into effect.
Previously, automobiles were subject to the highest GST slab of 28 per cent along with the levy of a compensation cess ranging from 1 per cent to 22 per cent, depending on the type of vehicle. The total tax incidence on cars, depending on engine capacity and length, ranged from 29 per cent for small petrol cars to 50 per cent for SUVs.
A bank official of a public sector bank said since the cancellation charges are very low compared to the benefit that customers will get after September 22, borrowers are opting for a fresh loan process.
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Those who had their car loans approved are now thronging banks for cancellations as they want to purchase vehicles after the GST cuts get implemented.
The GST rejig will lead to prices being slashed of nearly 400 products – from soaps to cars, shampoos to tractors and air conditioners.
It is to be noted that many banks had waived-off processing charges on vehicle and home loans to attract customers during the monsoon period.
A senior official of the Central Board of Indirect Taxes and Customs (CBIC) made it clear that the old GST rate would be applicable on cars if an invoice has already been issued to customers by the car dealer.
In the absence of an invoice being issued, however, customers can avail the new GST rate.
Another official said one more reason for a delay in offtake is the start of the ‘Shradha period’, which is on till September 21, and considered inauspicious for new purchases.
“Some of the customers are now opting for a better version of the car under the 1,300 cc category, as they are getting a 10 per cent benefit”, the officer added.
Meanwhile, an estimated ₹2,500 crore accumulated compensation cess on the books of auto companies will lapse on September 22, when the new GST rates come into effect.
CBIC Chairman Sanjay Kumar Agarwal said industry concerns about the accumulation of cess have been raised in various representations.
"Compensation cess was imposed for a particular purpose... Once the levy is gone, whatever credit is lying, it will remain lying in their books," Agarwal had said last week.
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