'1% TCS on cars above Rs 10 lakh may impact ease of doing biz'

New Delhi: The one percent tax collection at source (TCS) on luxury cars priced above Rs 10 lakh announced by Finance Minister Arun Jaitley in the Budget 2016-17 could impact ease of doing business, according to home-grown auto major Mahindra & Mahindra.

The tax would be collected on ex-showroom price. The dealer will have to collect and pay it to the government. Since the TCS can be set off against tax liability, it is a timing issue, the company said in an analyst conference call.

"It would require some additional upfront payment from the customer. Coupled with increasing administrative hassles, it could impact ease of doing business," Mahindra & Mahindra said in the concall, excerpts of which were filed on BSE.

The company further said the TCS would be applicable on XUV500 and some models of Scorpio.

While the XUV500 is priced at Rs 11.5 lakh to RS 17.23 lakh (ex-showroom Mumbai), the Scorpio is available at a price range of Rs 8.62 lakh to Rs 14.08 lakh (ex-showroom Mumbai).

In his Budget speech, Jaitley had said: "I also propose to collect tax at source at the rate of 1 percent on purchase of luxury cars exceeding value of Rs 10 lakh and purchase of goods and services in cash exceeding Rs 2 lakh."

For compliant tax payers with resources, this levy not only advances collection of tax when the expenditure is incurred, but it provides data to tax authorities to identify the persons who incur such expenditure but may be missing from the tax base.

"Farmers and notified class of persons will have an option of giving a form by which TCS will not be charged," the minister had said.

On the overall implications of the infrastructure cess of 1-4 percent on automobiles, M&M said: "The cess will impact the entire industry, it does not discriminate between petrol and diesel. Hence, (there is) no competitive disadvantage to the company per se."

On a possible price hike, the company said: "It is general practice to pass on statutory levy increases to customers, wherever it is an industry level increase. The company would also do so in due course of time, after SIAM's discussion."

While the petrol variant of its newly launched mini SUV KUV100 will attract a cess of 1 percent, M&M said its diesel variant and another SUV TUV300 will come under the slab of 2.5 percent cess slab. Bolero, Scorpio, XUV500 and Xylo will be charged at 4 percent.

"There might be some impact on volumes. However, it could be offset by factors such as increased rural demand and soft interest rates," M&M said.

In the Budget, Jaitley proposed 1 percent cess on petrol/LPG/CNG driven motor vehicles of length not exceeding 4 meter and engine capacity not exceeding 1,200 cc and 2.5 percent on diesel-driven motor vehicles of length not exceeding 4 meter and engine capacity not exceeding 1500 cc.

Other higher engine capacity and SUVs and bigger sedans will, however, attract a cess of 4 percent, Jaitley added.