Shoppers examine jewellery on display at a stall. (Photograph: Dhiraj Singh/Bloomberg)

High-Value Cars, Jewellery To Be Cheaper As Tax Collected At Source To Be Excluded In Computing GST     

In a relief to buyers of high value cars and jewellery, the Central Board of Indirect Taxes and Customs said the tax collected at source amount would be excluded from the value of goods for computing goods and services tax liability.

Under the Income Tax Act, tax collected at source is levied at 1 percent on purchase of motor vehicles above Rs 10 lakh, jewellery exceeding Rs 5 lakh and bullion over Rs 2 lakh. The tax collected at source is also levied on other purchases at different rates.

In view of the representations received from various stakeholders and after consultation with the Central Board of Direct Taxes, the CBIC has decided to exclude the tax collected at source amount paid while valuing the goods for the purpose to levy GST.

The CBDT has clarified that tax collected at source is not a tax on goods but an interim levy on the possible “income” arising from the sale of goods by the buyer and to be adjusted against the final income-tax liability.

For the purpose of determination of value of supply under GST, tax collected at source under the provisions of the Income Tax Act, 1961 would not be included as it is an interim levy not having the character of tax.
CBIC Circular

Also read: Consumer Goods Makers Won’t Be Taxed On Buy-One-Get-One-Free Offers

In December, the CBIC had said the tax collected at source amount would also be included while ascertaining the GST liability on goods on which tax collected at source is applicable under the Income Tax Act.

EY India Tax Partner Abhishek Jain said, “This clarification comes as quite a relief for businesses specifically the automotive sector. While most industry players already believed that GST should not be levied on the income tax-tax collected at source component, given the otherwise clarification by the government, they were quite apprehensive of litigation on this aspect.”

AMRG & Associates Partner Rajat Mohan said the erstwhile circular issued by the CBIC unnecessarily complicated the mechanism of calculating GST where tax collected at source-income tax was also collected by the supplier.

The recent corrigendum of CBIC eased the calculation process by breaking the circular referencing which would also result in marginally rationalising the tax payments (GST and income tax both).
Rajat Mohan, Partner, AMRG & Associates