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Based on a December 2022 release, the GST Council has been under the process of redefining the criteria that classify a motor vehicle as an SUV, for which the GST cess rates varied between 20 to 22 percent. Car buyers and manufacturers were hoping that the GST Council’s redefinition of SUVs would help reduce tax rates imposed on smaller SUVs. However, the GST Council has not gone with any of the recommendations and has in fact widened the scope of what cess rate utility-vehicles should be slapped with.

SUV and MPV utility vehicle to now attract 22 percent GST cess

SUV and MPV utility vehicle to now attract 22 percent GST cess

GST Council redefines criteria for SUV tax rates:
During the 50th GST Council Meet, Finance Minister, Nirmala Sitharaman said, “There was a request that the 20 and 22 percent taxation on SUVs be rationalised so that everything is merged and be taxed at an even 22 percent. We have not gone with that recommendation because if we do, then the sedan also gets included into it. Two states specifically had objected against inclusion of sedans, these were Punjab and Tamil Nadu. So we have expanded the taxation scope but not to such an extent that sedans get included as well.

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Bottomline:
While sedans had a near miss from coming under the fold of higher taxation, the keywords from the finance minister were ‘we have expanded the scope’. What this means is that under the updated criteria, multi-utility vehicles such as SUVs and MPVs like the Mahindra XUV700 or Toyota Innova Hycross petrol, will now attract a 200 point increase in cess rate from the current 20 percent to a 22 percent flat rate. The GST rate of 28 percent has also remained unchanged. The move makes both SUVs and now MPVs costlier by 2 percent across the board. However, hybrid multi-utility vehicles such as the Innova Hycross hybrid, would still be charged at a lower 15 percent cess rate.
Moreover, any vehicle with an unladen ground clearance of 170mm would also come under the UV category. Earlier this criteria was on laden basis (with occupant weight). Vehicles longer than 4 metres and with engine capacity of over 1,500 cc are also part of the criteria set by the council. Overall, any petrol or diesel SUV/MPV which meets this criteria, will attract a flat 22 percent cess rate now.

GST cess on Hybrid SUV or MPV remains unchanged at 15 percent

GST cess on Hybrid SUV or MPV remains unchanged at 15 percent

What to expect:
While it is clear that this would lead to an increase in SUV and MPV prices, the exact amount is difficult to ascertain right away, as a manufacturer’s specifications published on a brochure can be different from the homologation certificate that they receive from the government. The taxation is based on the homologation certificate before a model enters the market.



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