Volkswagen Financial Services- 16 Jan 2018

How Financing a Car Affects Claiming GST

Financing a car is one of the simplest and most effective ways of buying a car today. It is one of the main reasons why automobile sales have climbed steadily in India over the years. The introduction of Goods and Service Tax (GST) was greeted with open arms by the automobile manufacturing sector because of the obvious benefits it posed. The streamlining of the indirect taxation system, while a big boon to the industry, did raise some questions among car buyers about its impact on car financing.

The Goods and Service Tax was levied on July 1, 2017, to better organize the taxation processes around the country. It completely overhauled the ancient tax practices and put in place numerous streamlined and highly efficient tax structures for the consumers and businesses to follow. One of the most impacted sectors because of this move was the automobile sector.

Finance companies play a significant role in car purchases around the world. Their increasing influence has been largely felt through the increased car sales across India. These companies gain interest from the financing of vehicles and have been kept largely exempt from any GST taxation. This exemption, however, does not extend to the various charges recovered by the company from the borrower for the duration of the loan agreement.

A borrower can still be liable to pay the GST on his automobile finance terms. This is because the charges, when paired with GST, come to be higher than the ones existing beforehand. The 18% service charge may mean that the borrower must prepare for spending a little more than expected for the car they desire. This, however, may be offset by the serious cuts provided by the government on a number of vehicles, including luxury cars.

On the other hand, if you are thinking of leasing a vehicle, then the GST rate on such a transaction would be linked to the applicable rate of GST on the vehicle. So, while leasing cars may seem like a good option on paper, it may also become more expensive under GST norms. While the increase in charges may vary from lender to lender, the general 15% charges have now come to 18% under GST.

The thing to consider though is that Income Tax Credit may no longer be claimed for cars bought for personal or business use. The exceptions to this case are cars bought for supplying conveyance, transporting passengers, or to impart training.

In a nutshell, while the increase in car financing costs will not be, by any stretch of the imagination, detrimental to car buying, it is still going to marginally increase under the GST laws. In a nutshell, buying a car with the help of sound financing companies is still one of the foremost means of acquiring the automobile you desire and deserve.