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.

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:

  • Petrol/LPG/CNG driven motor vehicles under 4m in length and with engine capacities less than 1200cc will pay a cess of 1%.
  • Diesel-driven vehicles of length less than 4m and engine capacities less than 1200cc will pay a cess of 2.5%
  • 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.

Infrastructure Cess is Nil for:

  1. Electrically operated vehicles
  2. Cars for people who fall under prescribed conditions for Physical disabilities.
  3. Three-wheeled vehicles
  4. Hydrogen vehicles (fuel cell technology)
  1. Hybrid vehicles
  2. Motor vehicles (registered as taxi only) and fulfil prescribed conditions
  3. Motor vehicles (registered as Ambulance only) and meet certain prescribed conditions

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/

FAQs on Infrastructure Cess

  • Can the Infrastructure Cess be applied to two-wheelers and three-wheelers?

    No, the infrastructure tax only applies to cars and other large vehicles. Two-wheelers and three-wheelers are currently exempt from paying infrastructure taxes. 

  • In what ways does the government use Infrastructure Cess?

    Government uses the cess to develop rural and state roads and maintain national highways.  

  • When was road cess introduced?

    The road cess was established in 1998 to fund road construction.  

  • How is Infrastructure cess determined?

    The applicable tax rate is determined by the manufacturer's capacity and type of vehicle. 

  • Are two-wheelers and three-wheelers required to pay excise duties?

    Yes, according to the Central Excise Act of 1944, two-wheelers and three-wheelers need to pay excise taxes.  

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