Banks See Spike In Car Loan Cancellations Ahead Of Sept 22 GST Rate Cut-Off

Banks are getting requests of canceling the approved car loans, considering the introduction of GST rate cut that would reduce the price of the passenger cars as well as the eventual reduction in the amount required to buy them.

It is noted that the last meeting of the 56th GST Council which held earlier this month approved massive reduction of the GST rate on cars as low as 1,200 cc to 18 per cent of the current rate of 28 per cent.

Almost 400 products, including soaps, shampoos, tractors, air conditioners, and others will be cheaper once the rejig of the GST takes effect in the very first day of Navaratri, which is on September 22.

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Some of the customers whose car loan has been approved are calling the relevant branch to cancel the loan as they wish to buy once the GST reduction is effected as a run up to September 22, a senior official of a state-owned bank said.

Later the official also added that as the cancellation fees are quite low in comparison to the reward that they will receive after the 22 nd of September, borrowers are choosing a new loan process after rate cuts would take effect.

It is noted that most banks have relaxed-off their processing fee on vehicle and home loan to get customers at the monsoon season.

As per a senior officer of Central Board of Indirect tax and customs (CBIC), the old GST rate would apply to cars provided the invoice is issued to the consumers by the car dealer.

New GST rate can be availed to the customers, provided the invoice is not issued by a car dealer.

Another of the officials blamed the delay in offtake by some borrowers who are awaiting the reduction in rate as well as the Shradha period that extends until September 21.

The officer further added that some of the customers are now buying the better edition of the car in the 1,300 cc category because they are getting 10 per cent benefit.

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In the meantime, the book entries of auto companies made up of an estimated Rs 2,500 crore of accumulated compensation cess is going to expire on September 22 when the new GST rates come into force.

At this point, cars are charged GST of 28 per cent, the highest rate, and above it, there is a compensation charge of 1 per cent to 22 per cent, as it will depend on the nature of the vehicle.

The overall tax rate on vehicles based on engine power and length varies between 29 per cent of small petrol vehicles and 50 per cent of SUV.

The petrol and diesel vehicles with engine capacity of up to 1,200 and 1,500 cc will have 18 per cent GST, and those exceeding this will have the highest GST of 40 per cent which will be charged with effect of September 22.

Automobile compensation cess will no longer be in existence as of September 22.

CBIC Chairman Sanjay Kumar Agarwal added that industry issues regarding the cess accumulation have been brought up in different representations.

"Compensation cess was imposed for a particular purpose... Once the levy is gone, whatever credit is lying, it will remain lying in their books," Agarwal had said last week.

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