Luxury car cess capped at 15 percent under GST

The Goods & Services Tax (GST) council has fixed an additional cess of 15 percent over the peak GST rate of 28 percent on luxury cars, according to a report by PTI. This means the total incidence of tax on cars could be up to 43 percent.

However, Finance Minister Arun Jaitley was quoted saying that the exact cess will be decided once GST rates are finalised and are likely to be lower than the cap as the Council has kept a "little" headroom for future exigencies.

Citing an example, Jaitley said if a luxury car at present commands a total tax of 40 percent, under the new indirect tax regime, a GST of 28 percent plus 12 percent cess would be levied to keep the tax incidence at the same level.

The revenue collected from cess will serve towards creating a fund to compensate the states towards their revenue loss, according to reports. Apart from luxury cars, other items that will attract the additional cess include aerated drinks and mineral water.

GST, the biggest tax reform yet attempted in India, is now likely to meet the July 1, 2017, deadline with the GST Council clearing the two remaining supplementary bills – State GST and Union Territory GST.

The Council will meet again on March 31 to approve the rules after which fitting goods and services in the four-slab tax structure of 5, 12, 18 and 28 percent will be taken up.