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 is being claimed as one among the most important tax reforms ever, it’s also being seen as one of the most challenging instances for 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 as well as in 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 GST regime with full tax advantages. For no fault, assessee’s stocks older than one year will end 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 end result in financial loss to sellers as one hundred% tax advantage may be allowed only in cases where situations (which are not clean) are fulfilled.
2. Carrying forward of unclaimed Credit
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Depending upon the charge of tax 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 maximum of the cases, duty paying files are not available. Consequently, tax payers will have to pay more or dealers e book losses.
Three. Demo Cars / Vehicles
Demo motors are used for advertising and schooling as a usual commercial enterprise practice which might be presently no longer taken into consideration as capital goods. There are divergent perspectives on the equal in view of unique denial of credit to motor cars in input tax credit score provisions.3.
Four. Discounts on Vehicles
Giving reductions to consumers of motors by means of 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 in the nature of quantity or trade discount/incentive. 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 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 complete 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 a case of 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 so as 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 deliver is a technical difficulty in which interpretation may be divergent and would lead to disputes.
7. Heavy Taxes on pre-owned Vehicles
Dealing in 2nd hand items (pre-owned automobiles) is a good sized a part of provider’s business. There is not any 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 past but in GST regime, improve bookings may be taxed whilst such improve is paid, adversely impacting working capital. This could result in the recognition of decrease advances a good way to adversely affect the working capital of producers.
Nine. Free Services / Warranties
Free services on behalf of different dealers or manufacturers, extended warranties, reimbursement of charges as natural agents are contentious problems which may also lead to none -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 by 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 right clarifications.