News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Service Tax »
 Introduced in 2017, the Goods and Services tax (GST) is a destination based consumption tax subsuming in itself, the erstwhile taxes like sales tax, service tax, excise etc. Under the GST
 Income Tax alert! Last date to do this work is October 31, check all details here
 Income tax on gains from stocks, equity mutual funds set to be revamped
 You can save tax on up to Rs 17,000 savings account interest: Here's how
  Communication to the Central Excise/Service Tax Taxpayers on migration to GST
 Don’t let the tax scrutiny spoil happy returns
 Government launches Faceless e-assessment scheme for taxpayers
 Tax department issues ITR scrutiny notices. Here’s what to expect and how to file a reply
 Income tax considerations for joint owners of properties
 Do senior citizens with income less than Rs 5 lakh need to pay tax on FD interest income?
  How is the interest paid on borrowings taxed?

New GST rules may increase prices of old vehicles, durables, smartphones
April, 04th 2017

After getting hit by the transition of new fuel technology — from Bharat Stage-III (BS-III) to BS-IV — the automobile sector in the country may be awaiting yet another shocker. The proposed taxation format under the upcoming goods and services tax (GST) is likely to fuel inflation, and increase the tax burden of secondhand car buyers and those opting for exchange offers. It may also increase the working capital of dealers of used vehicles.

Earlier the tax used to be calculated on the discounted value of a product in the case of exchange schemes after the market value of the old vehicle was deducted. The proposed GST rules, issued by the government on Sunday, will consider the market value of the new vehicle while calculating the tax burden. Thus, consumers may end up paying more as the discounted amount would be taxed.

Under the new GST rules, retailers and traders dealing in used vehicles will come under taxation. While under the existing rules, secondhand products are outside the purview of tax, sellers will have to pay taxes at the same rate as the new products.

According to Priyajit Ghosh, partner, indirect tax, KPMG in India, consumers may have to shell out more while buying used vehicles. “Under the GST, dealers are likely to pass on the additional tax burden to the consumers. However, bulk buyers may get some tax credit as invoices will include the taxed amount.”

“The new structure may increase the working capital of companies dealing in exchange schemes. While dealers who sell used vehicles within a month of buying them may not see the impact, delaying the process will increase working capital,” said Biren Vyas, partner, Grant Thornton India. Taking credit of the purchase tax in the same month will help them keep a check. The resellers market in India is currently pegged at 3.3 million units a year.

According to experts, since the current tax rules do not apply to the discounted value in the case of exchange of old vehicles against a new one, the tax paid remains lower. However, under the GST regime, income tax credit against the discounted value will not be recoverable.

“According to our preliminary assessments, the new rules are in line with the existing ones,” said Sugato Sen, deputy general manager, Society of Indian Automobile Manufacturers. Various automobile manufacturers in the country that this newspaper got in touch with said they are currently assessing the impact of the proposed rules.

Manufacturers of consumer durables and smartphones are cautious of the impact the new rules may have on prices of their products. While a majority of the automobile manufacturers own large dealerships, the consumer durables makers are, however, less affected. The impact here will have to be dealt by retailers and dealers, who usually run the exchange schemes.

According to C M Singh, chief financial officer, Videocon, exchange offers constitute a mere one per cent of the total sales for major manufacturers of televisions, refrigerators, air-conditioners and washing machines. “Exchanges are mostly dealt at the dealer level. We don’t see any impact for us,” said Kapil Agarwal, vice-president, Whirlpool India.

Exchange schemes cover almost a fifth or 20 per cent of the products sold in the consumer electronics and home appliances space in the country. “Since the dealers get better prices for these secondhand products from third-party buyers of consumer durable items than what they get from manufacturers like us, they usually do not sell these items to us. So, it is on them now how they channelise the excess cost arising out of the increased tax under GST,” said a senior executive of a major consumer durables manufacturer.

Thus, most of these consumer durables manufacturers are less affected by this new norm. It is the dealers, retail chains and e-commerce players who may land in trouble.

Home | About Us | Terms and Conditions | Contact Us
Copyright 2019 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Wholesale Silver Jewelry

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions