Paying in cash for a car above Rs 2 lakh? Shell out 1% extra tax

NEW DELHI: To bring unaccounted transactions inside the tax net, the Centre has decided to levy a 1% tax collected at source (TCS) on motor vehicles purchased in ‘cash’, in the range of Rs 2-10 lakh.

However, it will apply only to retail sales, and will not be levied on the sale of motor vehicles to government departments, embassies, consulates, high commissions and institutions notified under the United Nations Privileges Act, the income-tax department said in a clarification circular issued to field officers.

Also, any sale exceeding Rs 10 lakh will attract the 1% tax, irrespective of whether the amount has been paid by cash, cheque or demand draft.

TCS is income tax collected by the seller from the buyer on sale of certain items.

In his Budget speech, finance minister Arun Jaitley had proposed this levy on luxury cars above Rs 10 lakh.

According to sources, the tax department’s clarification comes after automobile manufacturers and dealers, among others, approached the government, expressing concerns on the same.

“The clarification was sought by the Society of Indian Automobile Manufacturers (SIAM), whose members met officials of the Central Board of Direct Taxes (CBDT) a few days back. We have tried to address all their concerns,” a senior tax department official said.

“The key clarification is that even if you purchase a small car and if the value exceeds Rs 2 lakh, TCS gets deducted. This means tax authorities can now track it,” said Amit Maheshwari, partner Ashok Maheshwary & Associates LLP.