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Car manufacturing plant Reuters file

Carmakers are showering heavy discounts to arrest the sluggish sales at year-end. But in what could be an irritant for the customers buying cars costing more than Rs. 10 lakh, the latest directive by the Central Board of Indirect Taxes and Customs (CBIC) has called for a greater tax on the high-end cars.

The central government has argued that a customer is liable to pay goods and services tax (GST) on the invoice value plus tax collected at source (TCS) under income tax and not just on the value of the goods. This means that the customer will have to bear GST on the value of tax collected by an auto dealer.

Notably, the auto sector is not the only sector which will be affected by the clarification.Telecom sector, which is already witnessing a tariff war, is also to get affected by the latest development. Tower segment that faces GST and TCS levies on the sale of scrap is likely to get affected most. The other sectors which will be affected include minerals and coal sectors.

Leading Financial daily, the Economic Times reported that TCS applies on automobiles above ₹10 lakh at the rate of 1%, which is levied on the ex-showroom price including GST. In its circular, CBIC said:"It is clarified that... taxable value for the purposes of GST shall include the TCS amount collected under the provisions of the Income Tax Act since the value to be paid to the supplier by the buyer is inclusive of the said TCS."

As per the income tax rules, in some cases, the suppliers of goods are liable to collect TCS on items such as scrap at the time the amount is received against supply. On the other hand, the recipient of the supply can claim a deduction in lieu of the tax collected while discharging his income tax liability which is subjected to TCS. Industry experts have said that the clarification is going to have a negative impact on the industry, especially automobile, as it will eventually burden the end customer with higher prices.