GST Rate Cut Sparks Rush in Banks as Customers Cancel Car Loans
GST Rate Cut Sparks Rush in Banks as Customers Cancel Car Loans
Lower GST on passenger vehicles from September 22 drives buyers to delay purchases
The recent Goods and Services Tax (GST) rate cut on passenger vehicles has triggered unexpected ripple effects in the banking sector. With the GST Council’s decision to reduce the rate on cars up to 1,200 cc from 28 percent to 18 percent, many customers are now cancelling their approved car loans to wait for the revised prices.
The 56th GST Council meeting earlier this month brought significant relief to consumers, lowering taxes on nearly 400 items—from soaps and shampoos to tractors, cars, and air conditioners. The revised rates will take effect from September 22, the first day of Navaratri.
Bank officials confirm that several borrowers are approaching branches to cancel their approved loans, preferring to reapply after the GST cut is implemented. The minimal cancellation charges are far outweighed by the savings of up to ₹60,000–₹1.55 lakh on small cars. In response, many banks have also waived processing fees on vehicle and home loans to attract customers during this festive period.
Officials from the Central Board of Indirect Taxes and Customs (CBIC) clarified that the old GST rate will apply if the car dealer has already issued the invoice. However, customers whose invoices are pending will benefit from the reduced rates. Some buyers are even upgrading to higher-capacity cars (up to 1,300 cc) to maximize the 10 percent tax benefit.
Meanwhile, around ₹2,500 crore worth of accumulated compensation cess on automobile companies’ books will lapse on September 22, when the levy is scrapped. Currently, automobiles attract the highest GST slab of 28 percent, along with a cess of 1–22 percent, depending on the vehicle type.
CBIC Chairman Sanjay Kumar Agarwal noted that while the industry had expressed concerns over accumulated cess credit, the levy was always meant for a specific purpose and will now be discontinued.
