Planning to buy a new car? Finance Minister Arun Jaitley has just made that costlier for you in his Budget 2016!

In his budget 2016 speech, the Minister announced 1 per cent infra cess on all the small petrol/LPG/CNG cars of length not exceeding 4-metre with an engine capacity below 1200cc. Taxes on the sub-4 metre diesel cars with engines not exceeding 1500cc will be additional 2.5 per cent. While other higher engine capacity cars including bigger sedans, MPVs and SUVs have been punished with an additional 4 per cent ‘high capacity’ tax. There’s also an additional 1 per cent ‘luxury tax’ on all the cars above Rs 10 lakh.

Budget 2016: Break-up of new taxes on cars, SUVs, sedans and MPVs

  • 1 % infra cess on small petrol/LPG/CNG cars of length not exceeding 4-metre with an engine capacity below 1200cc
  • 2.5 % additional tax on sub-4 metre diesel cars with engine not exceeding 1500cc
  • 1% luxury tax on all the cars above Rs 10 lakh
  • 4 % tax on bigger sedans, MPVs and SUVs with higher engine capacity.

Though the taxes announced in the Budget 2016 will affect all the carmakers, the luxury tax on cars above Rs 10 lakh and 4 per cent tax on SUVs, could go against carmakers like Mahindra & Mahindra and Toyota.

Special focus on rural infrastructure might help boost rural economy, and could improve the sales of entry-level two-wheelers in rural areas. In budget 2016, the government announced Rs 55,000 crore for roads & highway and a total of Rs 97,000 crore for new roads.

Not all is bad news though! In a move that will bring major cheer to the common man, Jaitley announced that the tax relief on House Rent Allowance (HRA) will be raised from Rs 24,000 per annum to Rs 60,000 per annum.

Also, those earning up to Rs 5 lakh a year will now get a tax relief of Rs 5,000, up from Rs 2,000 previously. This hike in relief effectively raise the basic exemption for these taxpayers to up to Rs 3 lakh. The relief was introduced in budget 2013 and was retained in the past two budgets.

On the 2016 Union Budget, Dr. Pawan Goenka, Executive Director, M&M Ltd said“The Budget places strong emphasis on agriculture, rural economy, infrastructure and social sector.  This is what I was hoping for. The resurgence and thrust on the PPP in infrastructure is most welcome. I also appreciate laying down some very clear goal posts on farm income and on village electrification.  Perhaps more could have been done for financial sector and taxation, though staying with the FRBM target was an unexpected bold move and perhaps does put some spending constraints on the Government.

On the face of it, imposing upto 4% Cess for Passenger vehicles is a concern for auto industry. However, one has to take it in stride, in view of all the priorities that we have for our economy and we in the industry have to manage it. Would have been good if some of the additional revenue from this cess was used to phase out older vehicles.”


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