GST rates: Auto sector in need of tax relief now

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For quite some time, the automobile industry has been demanding a GST rate cut on vehicles the total tax, including compensation cess, can go as high as 50% in the case of a certain class of cars to boost demand. However, the government has instead asked them to take cost-cutting measures such as reducing royalty payments to their parent companies abroad.

The closest the government came to hinting at the possibility of any GST cut was the recent statement by finance minister Nirmala Sitharaman that there is a case for reduction of GST rate on two-wheelers as these are neither a sin good, nor luxury. It must be noted that the pandemic has forced a large section of middle or lower income group of population to use two-wheelers over public transportation, and two-wheelers are currently taxed at 28%.

Recently, Maruti Suzuki, the country’s largest carmaker, had said there is no immediate need for GST rate cut on passenger vehicles with demand looking good for the next few months. But it added that the government can look at GST relief if demand tapered off in the future.

With the festival season approaching and sales picking up, the industry did not want to risk any postponement of purchases by customers if speculation regarding tax cuts gained currency, so it stated that demand scenario is fine till December, but there could be problems after that and perhaps that may be the right time to look at a GST cut.

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