Recent clarifications by the government on the tax structure currently imposed on luxury cars with a sticker price of higher than Rs 10 lakh is set to make them more affordable going forward. As per earlier norms under the income tax act, those purchasing vehicles with sticker value of higher than Rs 10 lakh are charged a levy of 1% in the form of Tax Collected at Source or TCS. While this stays in effect, the Central Board of Indirect Taxes and Customs (CBIC) has now clarified that the TCS will not be added to the sticker price before calculating the value of the GST. Thus effectively saving the customer about 1% per cent in terms of payout.
The clarification Central Board of Indirect Taxes and Customs comes after a notice in December the CBIC had said that the TCS amount would also be included while ascertaining the GST liability on goods on which TCS is applicable under the I-T Act. In view of the representations received from various stakeholders and after consultation with the Central Board of Direct Taxes (CBDT), the CBIC has decided to exclude the TCS amount paid while valuing the goods for the purpose to levy GST. The board has decided, that TCS is not so much a valid tax as it is an interim levy on the possible "income" arising from the sale of goods by the buyer and to be adjusted against the final income-tax liability.
"For the purpose of determination of the value of supply under GST, Tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as it is an interim levy not having the character of tax," the CBIC said.
For luxury car buyers, of course, this comes as a big relief. If your car has a showroom value of Rs 10 lakh, this could mean a reduction of about Rs 10,000 on the on-road price of the cars. The quantum of the benefit goes up as per the cost of the vehicle. Vehicles with a price tag of Rs 1 crore will receive benefits of up to Rs 1 lakh an so on.