GST came into effect from July 1 and cars that were taken on lease had an excise duty of 13.5 percent to 14.5 percent. From July 1, these cars will be subject to 28 percent tax under GST and also a 15 percent cess taking the effective tax rate to 43 percent.
A partial relief could be in sight for senior employees in companies opting for cars on lease from their organisation. The almost 43 percent taxation that will be applicable on cars on lease due to the Goods and Services Tax (GST) regime has been a source of worry for many employees. However, tax authorities are reconsidering the move to reduce the tax burden marginally by excluding cess.
GST came into effect from July 1 and cars that were taken on lease had an excise duty of 13.5 percent to 14.5 percent. From July 1, these cars will be subject to 28 percent tax under GST and also a 15 percent cess taking the effective tax rate to 43 percent.Tax authorities, GST Council and the concerned ministry were approached by the affected parties to thrash out a resolution to this issue. Petitions were also started on advocacy groups like change.org asking the Finance Ministry and GST Council to reconsider the double taxation provision.
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After several consultations, it is likely that the compensation cess applicable could be removed. This will be taken up in the next GST Council meeting in August.
Pratik Jain, Partner and Leader Indirect Tax, PwC India said, "There is a likelihood of relief on the taxation for car leasing. However, the decision would perhaps be taken in the next GST Council meeting. The central government may consider providing exemption from compensation cess for existing leases."
However, this will be an additional burden only for those executives who have availed of a car lease prior to July 1 since they also paid excise duty for it.
When senior executives take a car on lease from the company, a tax in form of excise duty is payable. Post GST, this would have led to a 30 percent increase leading to a direct impact on employees who have availed of this benefit. Due to this, individuals would have been forced to either let go of this benefit or buy off the car from the company after a few years.
Though some organisations had sought a complete waiver of GST for car lease availed of before July 1, this proposal is unlikely to be considered.