The GST Council has clarified that the ground clearance for vehicles will be measured when the car is unladen. This means that cars with smaller engines (under 1500cc) will continue to be taxed at a higher rate of 20%. However, the implications of this clarification need further clarification.
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The GST Council has clarified that large multi-utility vehicles (like the Toyota Innova Crysta) and SUVs (like the Scorpio-N, Hyundai Alcazar and MG Hector Plus) will attract a compensation cess of 22%. This is because these vehicles no longer have to be “popularly known as SUVs” to attract the 22% cess. However, strong hybrid versions of the Innova Hycross & Maruti Suzuki Invicto will continue to be taxed at 12%.
After careful deliberation, the Council has decided to amend the entry 52B in the compensation cess notification to include all utility vehicles by whatever name called, provided they meet the parameters of Length exceeding 4000 mm, Engine capacity exceeding 1500 cc and having Ground Clearance of 170 mm & above. The Council would like to clarify that ‘Ground clearance’ means Ground Clearance in un-laden condition.
The government has announced that it will be taxing MUVs at par with full-sized SUVs, attracting 28% GST & 22% compensation cess, bringing the total tax levied on the UVs to 50%. This is likely to have a major impact on the sales of these vehicles, as consumers will now be more likely to opt for SUVs over MUVs.
Further, SUVs with a laden ground clearance of less than 1700 mm, but meeting other parameters are now likely to attract a higher rate of cess, as unladen ground clearance for such vehicles, including the Mahindra Scorpio-N, Hyundai Alcazar, MG Hector Plus etc is likely to be above 1700mm. This is likely to have a negative impact on the sales of these vehicles, as consumers will now be less likely to opt for them.
MUV vehicles such as the Maruti Suzuki Ertiga, XL6, and Kia Carens will continue to be taxed at a 20% cess, despite their engine capacities being less than 1500cc. However, sources in the industry highlight that the implications of the GST Council’s specification of “unladen” ground clearance will need more clarity, as vehicle ground clearance is typically certified in a laden state.