Demonetisation effect: All-cash purchases of premium cars on decline, but still not rare

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Updated: September 19, 2019 7:06:56 AM

In some instances, such high-value purchases are being made not in the name of the actual buyer but his close associates like relatives or those he employs, a chartered accountant said on condition of anonymity. He added that such cars are also being sold on fake PAN cards.

Suzuki, Maruti, industry news, Maruti Suzuki India, Suzuki Motor Corp, auto sector, auto sector slowdown, auto To be sure, all-cash deals are still not rare for premium vehicles worth above Rs 25 lakh.

By Pritish Raj & Sumit Jha

All-cash vehicle purchases have shown a steady decline over the last three years as the dealers and customers are acutely aware that untaxed funds are much more easier to be traced, post-demonetisation. Though even before the note ban in November 2016, there were stringent documentation norms for cash deals, dealers used to find ways to circumvent them.

To be sure, all-cash deals are still not rare for premium vehicles worth above Rs 25 lakh. In some instances, such high-value purchases are being made not in the name of the actual buyer but his close associates like relatives or those he employs, a chartered accountant said on condition of anonymity. He added that such cars are also being sold on fake PAN cards. People involved in such transactions are certainly aware of the risk they are taking.

A dealer who sells premium SUVs worth around Rs 30 lakh and above said that prior to demonetisation, dealers used to accept gold as a form of payment, along with cash and cheque. However, this has gradually gone out of trend due to increased scrutiny and a fear of crackdown by the tax department and other government agencies. This dealer said the number of vehicles sold entirely on cash has gone down by at least a quarter in the last two years.

Further, after GST came into force in July 2017, the banks started asking customers to produce their income-tax returns for auto loans meant for even part payment to purchase a vehicle. This was a change from earlier practice where loans were given on the basis of credit worthiness of the customer who could produce some collateral.

This discouraged use of cash in buying vehicles as loans to bridge the gap between price of the vehicle and cash wasn’t easily available due to either non-filing of income-tax returns or returns that didn’t prove that loans sought were commensurate with the income of the individuals.

Even for executive sedans where the starting price is Rs 10 lakh, cash use was widespread till three years ago. One of the car dealers, who also requested anonymity, said that though the documentations required before and after demonetisation are roughly the same, the fear of scrutiny has risen.

For instance, if a customer approached a dealer for an all-cash purchase, some would readily agree. In their ledger, they would split part of the cheque payment made by other customers to the all-cash customer while attributing some cash to the person who paid in cheque. “We would ask for PAN card mandatorily as age proof even before the rules made it compulsory for producing it for any transaction above Rs 50,000. However, what has made the difference is the fear that dealers and customers alike feel due to increased scrutiny, which has dissuaded them from dealing in cash. Additionally, the cash use was dented by the proposal to levy a 1% tax collected at source (TCS) for purchase of vehicles worth over Rs 10 lakh or even for lower-valued vehicles if cash payment exceeded Rs 2 lakh. The TCS acts as an audit measure to trace the origin of cash generation and subsequent change of hands.

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