Maruti Ertiga, Kia Carens to get more expensive? GST council to define MUVs, XUVs for added 22% cess

The GST Council, which will be meeting next on July 11, might clarify the definition of multi-utility vehicles (MUVs) and crossover utility vehicles (XUVs) for levy of a 22 per cent compensation cess over and above the 28 per cent GST rate.

According to a PTI report, the Fitment Committee, comprising tax officials from the Centre and states, has recommended to the GST Council to define MUVs and XUVs at par with the sports utility vehicles (SUVs) in line with GST slabs.   

It is to be noted that the GST council members had previously suggested that there be clarity on the taxation of MUVs and other related names used in trade. 

States including Haryana had cited that there is a clear case of tax evasion by auto players amid ambiguity between many car models not called as SUVs but fall under the same specifications, as described under the GST law for the treatment of SUVs. 

The Fitment Committee had recommended that all utility vehicles would attract 22 per cent cess provided they meet three main parameters: length greater than 4m, engine capacity greater than 1500 cc, and ground clearance more than 170 mm. 

In December 2022, the GST Council, chaired by the Union finance minister Nirmala Sitharaman and her state counterparts, had clarified the definition of SUVs. 

How are cars taxed ? 

The Centre levies a uniform tax of 28 per cent under GST on all cars, but there is also a compensation cess on some cars. 

At present, SUVs attract the highest GST at the rate of 28 per cent along with a compensation cess at 22 per cent. MUVs, with have an engine capacity of less than 1500cc, attract a GST of 28 per cent and cess of 15 per cent. 

Others in the similar category, with engine capacity exceeding 1500cc, but not meeting other parameters of SUVs, attract GST of 28 per cent and cess of 20 per cent. 

How GST Council defined SUV 

The GST council noted that for levy of a higher rate of compensation cess of 22 per cent, the car across the country should be called SUV, its length should be 4,000 mm, its engine capacity should be more than 1,500 CC and it should have a ground clearance of over 170mm. 

While defining an SUV, Finance Minister Nirmala Sitharaman had said the higher rate of compensation cess of 22 per cent is payable to a motor vehicle that meets all four parameters. 

What's the confusion? 

FM Sitharaman had stated in the last GST Council meeting that the argument over MUVs began when certain states questioned whether sedans should be termed SUVs. Thereafter, the states suggested that a MUV definition be adopted. 

Taking a look at the cars sold in India, a number of them do not fulfill all four conditions and hence are not taxed as SUVs, like Mahindra Thar, Kia Carens and Maruti Ertiga. For them, the cess ranges between 15 per cent and 20 per cent. 

MUVs, XUVs hike in cess 

If the cess of 22 per cent is levied, MUVs, such as Toyota Innova Crysta, Maruti Ertiga, Renault Triber, will move into the highest slab of compensation cess, which will hit the manufacturers and consumers alike.  

There has been a buzz that the Centre may include MUVs or XUVs in the same bracket as sports utility vehicles (SUVs), irrespective of automakers’ varied nomenclature.

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