Immediate GST relief for leased cars unlikely

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There may not be an immediate relief for those using leased cars with the GST Council unlikely to tinker with rates for the moment.

A large number of car users, including employees of companies as well as drivers of car aggregator firms such as Ola and Uber, have been hit by the government’s decision to increase the levy up to 43% instead of the earlier level of around 13%.

The decision has been particularly tough on those who had started the lease before the GST regime kicked in from July, resulting into a large number of foreclosures. As TOI reported in June, GST has pushed up the monthly lease pay-out on a Honda City or Toyota Altis by around 27% for leases of four years that have been in force for a year now. And, with the cess on several cars expected to go up in the coming days, the burden may rise further. Government sources told TOI that the leasing companies did not appear to have a strong case as they had claimed depreciation benefit, which negated the impact of the higher tax. Tax consultants and leasing companies, however, questioned the logic.

Under the earlier regime, a large number of states did not allow for input tax credit on the excise component. So, the capital value was only 12.5% higher and the depreciation under the Income Tax Act did not make up for the higher taxes that are to be paid now. In addition, industry players said this is like a “retrospective amendment” as the new tax comes in midway into the contract period. “This should be grandfathered and only new leases should be subjected to a higher levy,” said a source. Government sources indicated that a decision on this issue was not simple and may take time. Industry sources also alleged that government officials did not appreciate the concern as they believed that the problem was confined to senior executives in large corporate officers, whereas even drivers plying small cars for Ola and Uber were hit by the move.

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