Banks see spike in car loan cancellations ahead of GST rate cut rollout
Since the cancellation charges are very low compared to the benefit that customers will get after September 22, borrowers are opting for fresh loans
Banks are receiving a lot of requests to cancel approved car loans, ahead of the implementation of the GST rate cut on September 22. The reformed GST will lower the tax on passenger vehicles.
The 56th GST Council meeting, earlier this month, approved a substantial reduction in the GST rate for cars up to 1,200 cc to 18 per cent from the existing 28 per cent.
Low cancellation charges
Ahead of the implementation, some of the customers who had their car loans approved are now contacting the concerned branch for cancellation, as they want to purchase after the GST cuts are implemented, a senior official of a public sector bank said.
The official further said that since the cancellation charges are very low compared to the benefit that they will get after September 22, borrowers are opting for a fresh loan process once the rate cuts kick in.
It is to be noted that many banks have waived off their processing charges on vehicle and home loans to attract customers during the monsoon period.
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Customers opting for better options
According to a senior official of the Central Board of Indirect Taxes and Customs (CBIC), the old GST rate would be applicable on cars if the invoice has been issued to customers by the car dealer.
Customers can avail new GST rate, if the invoice has not been issued by a car dealer.
Another official said there has been a delay in off-take, as borrowers are now waiting for the rate cut.
Some of the customers are now opting for the better version of the car under the 1,300 cc category, as they are getting a 10 per cent benefit, the officer added. Meanwhile, an estimated Rs 2,500 crore accumulated compensation cess on the books of auto companies will lapse on September 22, when the new GST rates come into effect.
CBIC Chairman Sanjay Kumar Agarwal said industry concerns about the accumulation of cess have been raised in various representations.
"Compensation cess was imposed for a particular purpose. Once the levy is gone, whatever credit is lying, it will remain lying in their books," Agarwal had said last week.