10 caution points for car enterprise & car sellers


Goods and Services Tax (GST) is now just a few hours away to be a fact, and then a maximum of the existing indirect taxes on goods and offerings shall emerge as history-making GST indeed historic. The launch site at Parliament House will rewrite a brand new destiny, this time an economic one. GST, even though it is being claimed as one of the most important tax reforms ever, it’s also being seen as one of the most challenging instances for the car region. Here is an try to flag positive areas of issues for the automobile industry and automobile dealers, which are indeed grey, each in coloration and information and interpretation.

1. Closing Stock of Vehicles / Spare Parts

GST regulation provides that all last shares of finished items and inputs can’t be transferred to the GST regime with full tax advantages. For no-fault, assessee’s stocks older than one year will result in financial loss to dealers as a hundred% tax gain might be allowed simplest in instances where situations (which aren’t easy) are fulfilled. Assessee’s stocks older than 365 days will result in a financial loss to sellers as a one hundred% tax advantage may be allowed only when situations (which are not clean) are fulfilled.

2. Carrying forward of unclaimed Credit

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Depending upon the tax charge on entering and spare parts in GST regime, i.E., 18% and above or beneath 18%, enter tax credit score could be allowed handiest to the extent of 60% or 40% respectively, resulting in a residual loss to vehicle dealers. This is inevitable as in the maximum of cases, duty-paying files are not available. Consequently, taxpayers will have to pay more or dealers e-book losses.

3. Demo Cars / Vehicles


Demo motors are used for advertising and schooling as a usual commercial enterprise practice that might be presently no longer considered capital goods. There are divergent perspectives on equality given the unique denial of credit to motor cars in input tax credit score provisions.3.

4. Discounts on Vehicles

Giving reductions to consumers of motors using dealers in special paperwork may be very common. It could be through an invoice or otherwise. Dealers also get discounts from the manufacturers of cars like quantity or trade discounts/incentives. Their tax treatment and documentation might be critical to avoid interpretational disputes with the Department.

5. Dealing in pre-owned Vehicles

Today, there isn’t always a tax or a decreased tax on pre-owned or 2d hand motors. In GST, the tax might be payable on all such offers at the full price or at the differential cost in which input credit score has now not been taken. The hassle is -fold, valuation trouble in addition to the free of tax which is possible to be equal as in the recent car. Cess may also be relevant, which isn’t yet clear.

6. Composite Contracts of Sale and Service

Vehicles are normally subject to repair and renovation to involve the supply of consumables in addition to spare parts. Rates of each item in addition to services would be special, i.E., 28 or 18%. The hassle of treating a transaction as a blended or composite delivery is a technical difficulty in which interpretation may be divergent and lead to disputes.

7. Heavy Taxes on pre-owned Vehicles

Dealing with 2nd hand items (pre-owned automobiles) is a good-sized part of the provider’s business. There is no concessional price of tax prescribed seeking to the reality that such goods would have suffered tax already at the time of first purchase.

8. Advance Booking of Vehicles

Vehicles reserving by paying to strengthen money has had been taxed in the past but in the GST regime, improve bookings may be taxed whilst such improvement is paid, adversely impacting working capital. This could result in recognition of decreased advances, a good way to affect producers’ working capital adversely.

9. Free Services / Warranties

Free services on behalf of different dealers or manufacturers, extended warranties, reimbursement of charges as natural agents are contentious problems that may lead to non -compliance, disputes, and litigation.

10. Marketing Strategies and Freebies

A gift, car sellers provide incentives to ability shoppers within the shape of loose coverage, free accessories, gasoline coupon, extended assurance, etc., which can also be using taxable in GST regime. Valuation guidelines do not allow such practices except nicely documented, and as such, the tax would be attracted. If not, dealers might not get enter tax credit score on those sports as those could mean exempt materials.

All these suggestions cross on to reveal that it isn’t going to be a smooth experience in GST for automobile sellers; however, it could be full of bumps thanks to potholes on the adventure to GST. Let’s wish that the prevailing tax authorities, as they are, will quickly come out with the right clarifications.