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GST Cess Hike - All Utility Vehicles to cost more

In a significant move, the GST council recently convened for its 50th meeting and announced the implementation of a uniform tax structure for all Utility Vehicles (UVs) in India. The decision eliminates the differential rate of compensation cess and brings Sport Utility Vehicles (SUVs) and Multi Utility Vehicles (MUVs) under the same tax bracket. This blog explores the details of the council's decision and its implications for the automotive industry.

June 30, 2023 | 2 min read | Car & Sedans

During the meeting, the GST council declared that irrespective of the terminology used to classify a vehicle, if it meets specific parameters, it will attract a compensation cess of 22 percent in addition to the existing 28 percent Goods and Services Tax (GST). Previously, there was a differential rate of compensation cess based on the type of utility vehicle.

The definition of an SUV for the levy of cess previously included four criteria: the vehicle should be popularly known as an SUV, have a length of 4 meters or more, an engine capacity of 1,500 cc or higher, and an unladed ground clearance of at least 170 mm. However, under the revised regulations, only the length (4 meters and above), engine capacity (1,500 cc and above), and ground clearance (unladed clearance of 170 mm and above) will be considered for classifying a vehicle as an SUV.

Importantly, sedans will not be subjected to the higher cess rate, as clarified by Finance Minister Nirmala Sitharaman during a press conference. This decision provides clarity on the taxation framework for vehicles falling under the category of utility vehicles but not commonly known as SUVs.

The GST council's recent decision to introduce a uniform tax structure for utility vehicles marks a significant development in India's automotive industry. By eliminating the differential rate of compensation cess, the council has ensured that all utility vehicles, including SUVs and MUVs, will now fall under the same tax bracket. This move simplifies the taxation process and provides clarity for automakers and consumers alike. As the industry adapts to the revised regulations, it will be interesting to observe the impact on the market and the continued growth of utility vehicles in India.