Infrastructure cess to make cars costly

The prices of cars in the sub-Rs.10 lakh category may increase in the range between Rs.3,000 and Rs.45,000, while it may increase by few lakhs in the case of luxury cars.

There will be a levy of one per cent infrastructure cess on petrol/LPG/CNG-driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc, 2.5 per cent cess on diesel-driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc, and four per cent for other big sedans and SUVs.

The Finance Minister proposed a cess of 1 per cent on small petrol, LPG and CNG cars and 2.5 per cent on diesel cars. File photo

Also, there will be an additional one per cent ‘luxury tax’ on all the cars priced above Rs.10 lakh and increase in service tax by addition of 0.5 per cent Krishi Kalyan cess.

“Infrastructure cess of one per cent on small petrol/CNG/LPG cars , 2.5 per cent on diesel cars and 4 per cent on higher engine capacity cars has been imposed, which will affect the consumption in the already stressed environment,” said Ajay Seth, CFO, Maruti Suzuki India.

Industry representatives and analysts admitted that the new tax measures would impact the demand scenario in the sector.

“Infrastructure cess, increase in service tax by addition of 0.5% Krishi Kalyan cess and tax collection at source could create higher costs and compliance burden to an otherwise highly taxed sector and thereby act counterproductive to positive measures in the budget,” said Gaurav Karnik, tax partner – automotive practice, Ernst and Young.

“The budget presents a transformative agenda with clear-cut focus on initiatives for farmers, rural sector and infrastructure development. However, it negatively impacts the automobile industry. We are disappointed that the industry’s demand on reducing excise duty has not been addressed. On the contrary, infra cess has been added, which will further affect the price and consequently demand. Also, we need to evaluate the impact of extra tax levy of 1% on purchase of cars above Rs.10 Lakh,” said Joe King, head, Audi India.

PTI adds:

“Three-wheeled vehicles, electrically-operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, vehicles, which after clearance have been registered for use solely as taxi, cars for physically handicapped persons and vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from this cess,” Finance Minister Arun Jaitley said.

“The exemption rate of duties, which existed on parts of environment-friendly vehicles with expiry on March 31 this year I am planning to continue that,” he said.