Demo cars will be subjected to higher tax as Rule 6(5) in the GST Determination of Value Rules won’t be applied to them
From tomorrow onwards, the GST tax structure will come into effect and it is no secret that it will have a big impact on the automotive industry as a whole from the part sourcing to the selling price of the finished products. In the last two months, automobile companies have thrown discounts off the roof to attract more customers before the GST regime have its say on the volume-based cars’ price.
However, the plethora of dealers present across the length and breadth of the country will take a huge blow as the GST asks for never-before-seen higher tax rate on the demo vehicles that play a significant role in the buying decision of a passenger car. The existing scenario is that the demo cars are demanded 0.5 percent tax when sold in the used car space after a year or so.
But, the implementation of GST will skyrocket the tax between 28 and 43 percent of the value during sales. Speaking to TOI, K Ramaswamy, partner in accountancy firm R Krishna Iyer and Company, has said that the demo cars categorised under temporary certificate and not registered in dealer’s name as well as the ones registered in name of dealer are subjected to high tax under GST.
As per the buying and selling of second hand goods in the GST Determination of Value Rules, the taxes would not be applicable if the selling cost is lower than the purchasing amount. But this very rule won’t be applied to the demo vehicles as per GST. Therefore, if a demo car is sold for Rs. 3 lakh by a dealer, he would have to face a tax of Rs. 84,000 as opposed to just Rs. 1,500 under the old regulation.