Infrastructure Cess

Infrastructure cess is levied by the Indian Government on vehicle mass production. The rate applied by the Government is essentially determined by the capacity and type of the vehicle. The Government uses this amount to fund infrastructure projects.

What you ought to know about Infrastructure Cess?

The Union Budget 2016 spearheaded by Finance Minister Arun Jaitley announced, among other things, a number of cess taxes that came into effect of this year. Of the many he introduced like the Krishi Kalyan Cess and Clean Energy Cess, one particular announcement called the Infrastructure Cess riled up the entire automobile industry in India.

Now, you might be wondering what was so bad about the infrastructure that an entire sector has decried its introduction? Well, Read on to find out.

What is Infrastructure Cess?

Infrastructure cess is a tax imposed by the Indian government on the production of vehicles. The rate charged in this case depends entirely on the type and capacity of the vehicle. The money collected through this scheme will be used to fund infrastructure projects around the country.

When was Infrastructure Cess brought into effect?

As per the directives set by the Finance Ministry, Infrastructure Cess was made operational from the 1st of March 2016, which means that automobile sales (cars and heavy vehicles) that happened after the first of march would have to pay the cess.

What is the Infrastructure Cess rate introduced by the government?

The finance ministry has been very clear on where and how an infrastructure cess must be levied. You will find the exact cess rates below:

  1. Petrol/LPG/CNG driven motor vehicles under 4m in length and with engine capacities less than 1200cc will pay a cess of 1%.
  2. Diesel-driven vehicles of length less than 4m and engine capacities less than 1200cc will pay a cess of 2.5%
  3. Other category vehicles that exceed the 4m and the 1200cc limit will pay a cess of 4%.

While paying infrastructure cess has been made mandatory for cars are other heavy vehicles, two and three wheeler vehicles got a pass from it.

What is the automotive industry doing to offset the cost of Infrastructure Cess?

Indian automotive industry, which contributes to the country’s manufacturing GDP by 40%, has responded negatively to the news and is furthermore concerned about the possible downturn in business.

Roland Folger, the CEO of Mercedes-Benz India, has said that the introduction of these new rates played havoc with their products’ pricing. He also said that the company has decided to increase the price across its product ranges by about 3% to 5% to balance the cost of selling their vehicles and paying the cess.

Hyundai India, too, has decided upon a similar move and has increased the prices of their offerings. While their lowest increase stands at Rs. 3000 on the EON models, the highest price increase was Rs. 80,000 on its premium SUV, the Santa Fe.

The Senior VP of Honda Cars India Limited (HCIL) Jnaneswar Sen also expressed his disappointment over the introduction of infrastructure cess. He further lamented on the apparent lack of consideration by the government, especially for a sector that contributes to over 40% of the country’s manufacturing GDP. He also suggested that the company would hike car prices ranging from Rs. 4,000 to Rs. 80,000.

While the infrastructure cess has been introduced by the government to help build better road network in the country, the auto industry as a whole feels that it has been sidelined. The economic impact of the cess, however, can only be weighed up in the next few quarters/

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