Banks Face Car Loan Cancellations In Run Up To Sept 22 GST Rate Cut-Off Date

Banks are receiving requests for cancellation of approved car loans, in view of the implementation of Goods And Services Tax 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% from the existing 28%.

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 Sept. 22.

In a run up to Sept. 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 Sept. 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, 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 Sept. 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% benefit, the officer added.

Meanwhile, an estimated Rs 2,500 crore accumulated compensation cess on the books of auto companies will lapse on Sept. 22, when the new GST rates come into effect.

Currently, automobiles are subject to GST at 28%, which is the highest slab, and on top of it, a compensation cess ranging from 1% to 22% is levied, depending on the type of vehicle.

The total tax incidence on cars, depending on engine capacity and length, ranges from 29% for small petrol cars to 50 per cent for SUVs.

Effective Sept. 22, petrol and diesel cars with engine capacities of up to 1,200 cc and 1,500 cc will attract 18% GST, while those above that will attract the highest 40 per cent.

Compensation cess on automobiles will cease to exist effective Sept. 22.

CBIC Chairman Sanjay Kumar Agarwal said industry concerns about the accumulation of cess have been raised in various representations.

"Compensation cess was imposed for a particular purpose... Once the levy is gone, whatever credit is lying, it will remain lying in their books," Agarwal had said last week.