Generation in recent times has gone extra careful with their spending and savings while finding alternative solutions to their routine problems. One example is looking for a vehicle to take care of daily travel needs. With limited resources and unlimited desires, it becomes impossible to manage the expenses properly. Buying a car can be a troublesome task for many millennials, and looking for an alternative that gives you almost the same comfort and satisfaction as owning a car but doesn't mess with your future goals is all you need.
This is where car leasing in India comes into the picture. The accurate and cost-effective experience of owning a car without actually financing it, what more could we have asked for? While the benefits are just the same as owning one car, the costs and other expenses undertaken in a routine are also saved.
The implication of Goods and Service Tax-
The goods and service tax implies taxation on two events- taxable and charging. A taxable event constitutes a transaction at the time of supply and service. On the other hand, the charging event means that the GST will be implied on the goods only at the time of their sale. It determines the time when the GST liability is to be paid.
As we know already that the implication of GST is either on the supply of goods or services or both. In case a used car is sold to make a consideration for purchasing a new one, it will not qualify as a supply transaction. Hence on such a purchase or sale, no GST can be applied.
The motor vehicle GST regime has quite a few ranges. From 5%, 8%, 12% to 28%, the list varies from the type of vehicle you want. Most new cars are to be included in the 28% GST category, except for electronic vehicles. It depends on fuel saving, suspension system, and vehicle type.
On the other hand, if the person has already registered for GST and then sells a car or buys it, thereon will be an applicable sum of GST charged on this transaction.
Inflection of business car lease and impact of GST on it-
Business car leasing in India is not only a corporate game or a business opportunity. It is an upcoming opportunity for retail customers and people worldwide to experience all similar benefits that someone with a car would. With the interest on car loans rising each day, progressive demand for a car lease is also increasing by 15-20%.
People have started to prefer leasing a car rather than buying one to avoid the extra GST costs of purchasing a new asset. For example, if a person decides to buy a vehicle, they must pay an additional 20 percent as tax. This can be saved in the case of a second-hand purchase or car lease. This is the main reason people have started to prefer business car fleet management over the traditional car experience. The overall benefit of cost saving is here, which induces a higher customer reach.
In a modern-day leasing scenario, the person has to choose a car, formulate a contract, pay a certain sum, and get the travel time on their own accord.
The aftermath of GST implication-
If we talk about the technical aspects of a structured GST regime and its aftermath on the motor vehicle lease policy, the conclusion would indirectly result in double taxation of the same good. This is mainly because once a car is purchased, the buyer has already included and paid the central tax at the time of the purchase. With this change in the tax system, the lessee will also be obliged to pay GST for leasing the same car. This is the car on which the tax was already paid (at the time of purchase). Therefore, the buyer will be burdened with the same tax implication twice.
In an instance of such a reinforcement, various service agents and online car services platforms have stated that they are currently paying 14.5% VAT. If we apply the regular GST regime on this structure, these agencies will be left with no other option but will have to pay double the amount, around 29%, on the already leased cars. Which makes no sense at all. The value will be unnecessarily increased for the already leased vehicles. This would reduce the purpose of a lease, that is, reducing the costs and improving the benefits for the buyers. The driving partners' nominal fees will surge, and the prices will increase automatically.
As a result of such a cascading tax effect, there will be a following reduction in revenue. Car service providers and leasing agencies will need help to sustain the business. This can lead to poor productivity, underutilization of assets, and mass unemployment. This will also influence other related sectors negatively. As a growing number of companies purchase vehicles to simply lease them, advocating middlemen in the form of agents to necessitate the changes. In essence, if the related sectors are affected, slow or no growth in the leasing sector will be negligible.
What are the consequences?
The consequences of this GST regime are manifold and have not one but many branches of understanding. To begin with, the giants in leasing rentals are anticipating a rise of more than 25%-30% due to the new tax regime.
This will likely affect car rental service providers who have leased more cars than not, seeking exemption from this double taxation mechanism. This might seem like a death call for the automotive industry, but it's not an assured reality. The most recent development would be to start considering what the GST council decides and how they decide to implement it most logically while safeguarding the interests of buyers and sellers. Is revising the GST rates a viable or logical conclusion?
You can learn more about the current GST structures and its implication on your car lease policy by now logging on to our website!
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