GST council may keep tax load on cars below 50 per cent, cheer home budgets

HYDERABAD: The Goods and Services Tax (GST) Council is likely to keep the overall tax incidence on motor vehicles below 50 per cent at its meeting in Hyderabad on Saturday, a move that could rein in price increases. It will also consider the reduction and exemption of GST on several household items such as brooms, clay idols and saree ‘falls’ besides new guidelines for packaged and branded food products, said a senior government official.

The council has been empowered through an ordinance to raise the cess on some segments of cars by as much as 10 percentage points to 25 per cent, which on top of 28 per cent GST would take the overall incidence to 53 per cent.

The industry has lobbied against this, seeking a smaller increase or a phased introduction. Some have also asked for the creation of a new category of mid-sized cars to ensure they do not face the same tax+cess as high-end luxury vehicles, a proposal that the council will also consider.



“Officials have thrashed out issues,” said the official cited above. Imposing the maximum cess could lead to an increase in prices of about 7 per cent, experts said. Most car makers had slashed prices after the rollout of GST, which replaced multiple state and central taxes, on July 1. Industry has said a price increase would dent demand.

New framework for branded packaged food
The council will also review the impact of GST on prices of goods and consider lowering or scrapping the levy on household items such as rubber bands, computer monitors of up to 20 inches, khadi fabric and garments, apart from those mentioned earlier.

The council is also expected to consider a new stringent framework for branded packaged food products, following reports of basmati companies deregistering their brands to make them eligible for a nil GST rate.

One of the options on the table is to extend the 5 per cent rate on packaged items for which a company applied for brand protection. The proposal also suggests that products with brands or trademarks registered before May 19 face 5 per cent GST.

The issue of double taxation in the case of pre-GST car leases is also likely to be taken up by the council.

Despite payment of central excise, these vehicles had to bear both central GST as well as state GST. Industry has represented to the council that consumers should either be given credit for taxes paid in the previous tax regime or the rate be reduced for this sector. The issue was scheduled to be taken up at the last council meeting, but could not be discussed due to lack of time.