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Impact of GST on Auto Loans

Affordable and accessible Auto Loans have been one of the biggest contributors to the growth of Vehicle sales in the country, but with the introduction of GST from July 1, vehicle financing will see a change and this means that it will impact your auto loans.

With the introduction of GST, one of the most significant economic reforms to take place in India post-independence, it is expected to overhaul business processes currently adopted in India due to age-old tax regulations levied with Governments at Centre and at States.

With liberalization of the economy, India has witnessed a significant growth in terms of business and consumption during the past couple of decades.

During this period, the automobile sector has also made significant strides. An important reason fueling the growth in the said sector has been the availability of various financing options for both individuals and corporates to purchase a vehicle of their choice and need.

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GST on vehicle demand  

In pure finance transactions, the financing company mainly earns interest from financing of vehicles which would exempt from levy of GST. The same is in line with the international practices as well as the current practice adopted by India. However, the financing company would still be liable for GST on various charges recovered by it from the borrower during the tenure of loan agreement.

Thus, borrower would still be impacted by GST on his vehicle finance arrangements. With the GST rate on such charges to be higher than the present rate, the borrower has to brace for an increase on his vehicle acquisition cost.

The quantum of financing required by a borrower is potentially influenced by indirect tax aspects such as rate of tax on vehicles, availability of ITC of GST paid on purchase of vehicle, etc. This would be impacted due to high rate of GST coupled with GST Compensation Cess on all vehicles at varying percentages.

The availability of ITC of GST paid on vehicles in the hands of the borrower could also potentially impact the decision making of the borrower considering the effective cost of the vehicle (including the financing cost). Therefore, it would be imperative for the financing company to factor the impact of GST on the borrower while designing their loan products.

The financing company could be dealing with other alternatives of finance such as leasing of vehicles. The rate of GST on such transactions is proposed to be linked to the applicable rate of GST on vehicles, thus leading to decreased margins and double taxation.

Conclusion

Thus, it can be seen from above that although there is an apparent exemption to interest income earned by vehicle financing companies, GST could still impact the business of financing right from the aspect of product designing, cost of financing and their margins.

Source: Economic Times

The post Impact of GST on Auto Loans appeared first on MakeMyMoney.



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Impact of GST on Auto Loans

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