If you are planning to buy an SUV (sport utility vehicle) or MUV (multi-utility vehicle) the GST Council’s decision to change the definition of UVs that attract a compensation cess of 22% may have implications. Mint explains the changes and the impact on buyers.
If you are planning to buy an SUV (sport utility vehicle) or MUV (multi-utility vehicle) the GST Council's decision to change the definition of UVs that attract a compensation cess of 22% may have implications. Mint explains the changes and the impact on buyers.
How are UVs taxed under GST?
All motor vehicles, barring electric vehicles, are taxed in the highest GST slab of 28%. Electric vehicles, no matter what their physical or mechanical attributes are, attract a GST of 5%. Apart from the 28% GST on the basic price of a passenger vehicle, the government also levies a compensation cess in the range of 1% to 22%, which is also calculated on the basic price of the vehicle, depending upon the vehicle's ground clearance, length, engine capacity and fuel type. The effective tax rate on SUVs can therefore range from 29%, all the way up to 50%. The ex-showroom price of a vehicle is inclusive of GST.
What's the definition change all about?
The Society of Indian Automobile Manufacturers (Siam) requested clarification from the government regarding Section 52B of a finance ministry notification on compensation cess. It prescribed a 22% cess rate for SUVs—vehicles with engine capacity over 1,500 cc with a length exceeding 4,000 mm and ground clearance of 170 mm or above. However, the words "popularly known as SUVs" led to confusion as some MUV manufacturers such as Toyota Innova were taxed at a lower 20% rate. States questioned why MUVs were taxed less and sought clarification from original equipment manufacturers (OEMs).
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What changes with the new definition of UV?
The GST Council has removed the reference to SUVs, to now simply state that all utility vehicles, irrespective of how they're marketed, will attract a cess of 2% if they're more than 4,000 mm in length, have an engine capacity of 1,500 cc or above, and have unladen ground clearance of 170 mm or more. Earlier, there was no specific reference to ground clearance.
How will prices of models change?
The two clarifications will likely add a whole lot of UVs that escaped the 22% cess due to ambiguities in the definition into this cess. Large MUVs such as the Toyota Innova Crysta, as well as SUVs such as the Scorpio-N, Hyundai Alcazar and MG Hector Plus (which have laden ground clearance of less than 170mm but unladen clearance of more than 170mm) among others will likely attract the 22% cess, on a par with full SUVs like the XUV700, instead of 20% as was the case earlier. Strong hybrids will continue to enjoy a 2% concession.
How have automakers responded?
The industry still needs more clarity on the new definition, and will continue to bill vehicles as per the existing cess rates till the new rules are published and can define "unladen ground clearance", and the "process to measure the same", a spokesperson at M&M said in a statement. "Once received, we will approach the certification agency for potential recertification of the relevant models, based on the updated definition, if necessary." Toyota Kirloskar Motor said it is waiting for official details to assess the impact on its models.