Planning to buy a car over Rs 10 lakh? Prepare to pay more taxes

The government has clarified that taxable value for the purposes of GST shall include the tax collected at source amount, which is applicable on automobiles over Rs 10 lakh.

Planning to buy the likes of the Ciaz, Verna, Scorpio or perhaps one of the more expensive drives? Your wallet could take a bigger hit in the near future going by the Central Board of Indirect Taxes and Customs' (CBIC) latest directive.

"It is clarified that... taxable value for the purposes of GST shall include the TCS [tax collected at source] amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS," the CBIC said in a recent circular.

According to The Economic Times, the government has made it clear that GST is payable on the invoice value plus TCS and not just on the value of the goods. In other words, the consumers will have to cough up GST on the value of tax collected by an auto dealer. Since TCS is applicable on automobiles costing above Rs 10 lakh at the rate of 1% and is levied on the ex-showroom price, which includes applicable GST, these vehicles could get more expensive for consumers.

"Typically, the practice of industry has been to exclude TCS while computing GST," Pratik Jain, partner and national indirect taxes leader, PwC, told the daily. "If GST is required to be paid on TCS, then it will lead to additional burden on consumers and will also result to circular reference in computation as TCS is to be computed on GST as well."

Jain further pointed out that since TCS is essentially collected and paid on behalf of the buyer, logically it should not be subject to GST and the government should consider amending the law, if needed.

The latest CBIC directive is also likely to impact the telecom sector, especially the tower segment that faces GST and TCS levies on the sale of scrap, besides the minerals and coal sectors.