As the President gave assent to the GST (Compensation to States) Amendment Bill, 2017, the parliament has, now enacted the Act 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 GST (Compensation to States) Act, 2017 was enacted in order to raise the maximum cess that can be levied on cars to 25% as recommended by the most powerful body, Goods and Services Tax (GST) Council.
Cess is levied on motor vehicles over and above a rate of 28% GST. The said move seeks to restore tax revenue from the automobile industry that unintentionally got affected in the transition to the new indirect tax regime.
The Act is applicable to all motor vehicles with a capacity of up to 13 persons as well as on all cars where the cess is 15% at present. That includes medium-sized to large cars, SUVs, and hybrid cars. At present, cess levied on small petrol and diesel cars at the rate of 1% and 3%, respectively, remains unchanged.
The Government, in order to compensate the loss of the manufacturing States under the new indirect tax regime, has introduced a new cess with the name “GST Compensation Cess” for first 5 years on some specified items.
The cess will be levied on Luxury items like high-end cars and demerit goods including tobacco, pan masala and aerated drinks for this period of 5 years. The revenue for each state will be calculated by applying the projected revenue growth rate of 14 percent with 2015-16 as the base year.
Earlier, the Central Government passed an Ordinance to give immediate effect to the changes brought by the GST Council with regard to the compensation to States.
The Act is applicable with effect from 2nd day of September 2017.
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