Luxury cess under GST may end What it means for you
The luxury cess under GST—levied on luxury cars and certain goods—is likely to be scrapped as the government looks to merge the 12% GST slab. This could lead to a major simplification of India’s tax system ahead of the 2024–25 Budget.
Let’s break it down for Indian taxpayers and business owners.
What is Luxury Cess under GST?
Luxury cess is an additional compensation cess levied on:
- High-end motor vehicles
- Aerated drinks
- Pan masala and tobacco
- Certain luxury goods (as notified under Compensation to States Act, 2017)
It was introduced to compensate states for revenue loss due to GST rollout. The cess is over and above the standard GST rates (28% + cess).
Legal reference: Section 8 of the GST (Compensation to States) Act, 2017 governs this levy.
Why is the Government Planning to End the Luxury Cess?
Key reasons:
- Revenue compensation window has ended: The original 5-year period (2017–2022) is over.
- GST Council is reviewing slab rationalisation: A proposal to merge 12% with 18% slab is under discussion.
- Simplification and ease of doing business: Reducing rate slabs helps businesses with classification and compliance.
- Make in India push: Luxury goods manufacturing could get a boost if taxes fall.
What Happens if 12% GST Slab is Merged?
The 12% slab currently covers:
- Two/three-star hotels
- Household appliances
- Mobile phones
- Processed food products
Two possible outcomes:
| Scenario | Impact |
|---|---|
| Merge 12% with 18% | Tax burden rises on mid-range goods |
| Merge 12% with 5% | Revenue loss; unlikely move |
As per expert discussions in the last GST Council meetings, merging into 18% is the more likely outcome.
What Will Be the Impact on Consumers and Businesses?
For Consumers
- Price change on white goods, packaged foods, mobiles if slab merger happens
- Luxury car buyers may see price drop if cess is scrapped
For Businesses
- Easier GST rate classification
- Less litigation over rate disputes
- Impact on pricing and margins for goods currently at 12%
Expert View
“Slab rationalisation and cess withdrawal are logical next steps. But the transition must be gradual to avoid revenue shocks,” says CA Arvind Mehta, Indirect Tax Advisor at Efiletax.
Businesses should proactively assess product classifications, pricing impact, and stock adjustments in case of slab merger implementation.
Legal Timeline at a Glance
| Year | Event |
|---|---|
| 2017 | Luxury cess introduced under GST |
| 2022 | 5-year compensation period ended |
| 2024 | Council revisiting slab structure |
| 2025 | Likely decision on cess withdrawal & 12% slab merger |
FAQs
Q1: Will GST rates change if 12% slab is removed?
Yes. Goods in 12% may shift to 18% or 5%, with 18% being the more probable.
Q2: Will luxury cars become cheaper?
Possibly. Scrapping the compensation cess can lower overall tax burden on luxury vehicles.
Q3: When will the change take effect?
The GST Council may take a final call before Budget 2025, with implementation expected in the upcoming fiscal year.
Final Thoughts
The possible removal of luxury cess under GST and merger of the 12% slab is part of India’s long-term tax simplification agenda. While consumers might see changes in product prices, businesses must gear up for rate classification changes and policy shifts.
Need help understanding how GST rate changes impact your business?
📞 Contact Efiletax – India’s trusted GST filing and advisory platform.
Summary
Luxury cess under GST may be scrapped as the 12% GST slab faces possible merger. The move aims to simplify the tax structure, reduce disputes, and boost compliance. While prices of some goods may change, the long-term goal is ease of doing business and streamlined taxation.