Banks face car loan cancellations in run up to September 22 GST rate cut-off date

Banks are receiving requests for cancellation of approved car loans, in view of the implementation of GST rate cut, which will lower the price of passenger vehicles and also lead to subsequent reduction in the amount needed to purchase them.

It is to be noted that the 56th GST Council meeting earlier this month, approved substantial reduction in the GST rate for cars for up to 1,200 cc to 18 per cent from the existing 28 per cent. Nearly 400 products – from soaps to cars, shampoos to tractors and air conditioners – will cost less when the rejig of the GST is effective from the first day of Navaratri on September 22.

In a run up to September 22, some of the customers who had their car loan approved, are now contacting the concerned branch for cancellation, as they want to purchase after the GST cuts are implemented, a senior official of a public sector bank said. The official further said since the cancellation charges are very low compared to the benefit that they will get after September 22, borrowers are opting for a fresh loan process once the rate cuts kick in. It is to be noted that many banks have waived-off their processing charges on vehicle and home loans to attract customers during the monsoon period.

According to a senior official of the Central Board of Indirect Taxes and Customs (CBIC), the old GST rate would be applicable on cars if the invoice has been issued to customers by the car dealer. Customers can avail new GST rate, if the invoice has not been issued by a car dealer. Another official said there has been a delay in offtake, as borrowers are now waiting for the rate-cut and also due to Shradha period which is till September 21. Some of the customers are now opting for the better version of the car under the 1,300 cc category, as they are getting a 10 per cent benefit, the officer added. Meanwhile, an estimated Rs 2,500 crore accumulated compensation cess on the books of auto companies will lapse on September 22, when the new GST rates come into effect. Currently, automobiles are subject to GST at 28 per cent, which is the highest slab, and on top of it, a compensation cess ranging from 1 per cent to 22 per cent is levied, depending on the type of vehicle.