1% Additional Tax on Car Purchase with Cash; Govt.’s Fresh Salvo Against Black Money?


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Campaign against black money is long and full of interesting stories. For instance, in the last 1970s, Indian Govt. withdrew Rs 5000 and Rs 10,000 currency notes to curb circulation of black money as transacting heavier amounts illegally was made easy due to high denomination notes.

In yet another salvo against black money in India, Government has decided to charge an additional 1% tax on those car purchases which are being paid by cash. This rule has been cleverly made for those cars, whose price is more than Rs 2 lakh and less than Rs 10 lakh, and indirectly, this covers majority of automobile sale in the country.

Point to be noted: For all cars which are priced above Rs 10 lakh, this 1% additional tax would be anyways charged. During his Budget speech, Finance Minister Arun Jaitley had shared about this tax on all luxury cars priced above Rs 10 lakh.

For the cars priced between Rs 2 lakh and Rs 10 lakh, the 1% additional tax for cash purchase would be levied at the retail outlet, and hence, it has been described as tax collected at source (TCS), which is the tax collected by the seller from the buyer during sale of few items.

TCS applicable on cars priced between Rs 2 and 10 lakh also means that Income Tax department would be now aware about all such transactions, hence easier to track taxable citizens.

However, the cases where this tax has been exempted include: cars purchased for officials working in embassies, consulates & high commissions which are notified under United Nations Privileges Act; purchases for various Government departments and institutions, and income-tax department. This was conveyed via circular issued to all Govt. officials.

Besides, this special tax would be only applicable for retail level sales; and not on manufacturers’ sale to retailers. And, this TCS of 1% would be only applicable on all single sales, not on aggregated sale volume at the end of the year.

An official said, “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,”

Central Board of Direct Taxes (CBDT) has included a detailed FAQ section, explaining this special TCS of 1%.

Some other decisions made by Govt. to tackle black money:

PAN Card Now Mandatory For All Transactions Above Rs 2 Lakh; Masterstroke To Curb Black Money?

RBI Masterstroke Against Black Money: Pre-2005 Currency Notes Expire From March 31, 2014

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