The Union Cabinet has given its approval to the proposal of the Finance Ministry to promulgate an ordinance to suitably amend the Goods and Services Tax (Compensation to States) Act, 2017.

Due to the Cabinet’s approval to the ordinance the maximum rate at which the Compensation Cess can be levied will increase from 15% to 25% for the following businesses:

  • motor vehicles for transport of not more than thirteen persons, including the driver [falling under sub-headings 870210, 8702 20, 8702 30 or 8702 90]; and
  • motor vehicles falling under headings 8703.

It is notable that after the passing of this ordinance, taking into consideration the fact that post introduction of GST, the total incidence on motor vehicles [GST+ Compensation Cess] has come down vis-a-vis pre-GST total tax.

The GST Council shall examine the issue regarding the increase in effective rate of Compensation Cess on motor vehicles in its future course of action.