Luxury cars, SUVs to cost more as Union cabinet approves GST cess hike ordinance

The new levy is in addition to taxes on the sale of luxury vehicles. Photo: Bloomberg

New Delhi: The Union cabinet on Wednesday approved an ordinance for raising the goods and services tax (GST) cess on luxury cars and sports utility vehicles to 25% from 15%, a government official with knowledge of the decision said.

The new levy is in addition to taxes on the sale of luxury vehicles.

The finance ministry on 7 August said the goods and services tax (GST) council chaired by finance minister Arun Jaitley had recommended to the central government to move legislative amendments needed for raising the maximum ceiling of cess that can be levied on motor vehicles including sports utility vehicles (SUVs) to 25% from the present 15%.

The GST Council, the apex tax rate setting body under the GST regime, had on 5 August approved raising cess on SUVs, mid-sized, large and luxury cars that had become cheaper post GST rollout on 1 July . But, for raising the cess requires an amendment to the Schedule of section 8 of the GST (Compensation to a State) Act, 2017.

Cars attract the top tax rate of 28%. On top of this, a cess of 1-15% is levied for the creation of the state compensation corpus. After the introduction of GST, the total tax incidence on motor vehicles (GST plus compensation cess) has come down when compared with the total tax incidence in the pre-GST regime.

To rectify the anomaly, the GST Council, headed by union finance minister Arun Jaitley and comprising of representatives of all states, had on 5 August recommended that the Central government move legislative amendments required for increasing the cess.

The GST Council may in its next meeting on 9 September decide the date when the increased cess will be applicable.

Reuters and PTI contributed to this report

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