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Auto industry in a bind on compensation cess as GST 2.0 kicks in from Sept 22 The automobile industry is in a bind on the compensation cess issue and is still hoping for a reprieve from the government. The industry has already approached Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman over the last few days, seeking ways to recover an estimated Rs.2,500 crore to the dealers. We are constantly in touch with the Finance Ministry and we are hoping for the best, Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM) told businessline on the sidelines of the SIAM's 65th annual convention here. According to sources, the automobile industry representatives are again approaching the Finance Ministry on Friday with a request for an immediate solution to the compensation cess issue. Higher tax The recent changes in GST and the removal of the compensation cess on automobiles have created a significant challenge for car dealers in India, particularly regarding their existing stock. When dealers purchased vehicles from manufacturers before the change in the GST rate, they paid a higher tax that included both GST and a compensation cess. This cess amount was an input tax credit in their books, which they would adjust against the cess they collected from the final customer. But after the change in the rate with the cess now removed for most vehicles, dealers cannot charge this tax to customers from September 22 when the new GST rates kick in. However, they still have a large balance of cess credit on the cars they have in stock. The Federation of Automobile Dealers Associations (FADA) has said that there would be an estimated cess loss of around Rs.2,500 crore to the dealers, if the government does not indicate any solution to recover them before September 22. Both original equipment manufacturers (OEMs) as well as dealers are stuck with the stock with high price and they will have to give reduced price to the customers after September 22. Speaking at the FADA's Retail Conclave on Wednesday, Commerce Minister, Piyush Goyal assured the industry that he would discuss the compensation cess with the Finance Minister. Auto industry sources said that each company has to bear losses worth crores of rupees if compensation cess was not paid off or some solution is not arrived at. For instance, sources at koda Auto Volkswagen India that has brands like Audi and Lamborghini, said that it would have compensation cess amounting to around Rs.300 crore with all brands put together. In a letter dated September 8, automobile dealers have urged the Prime Minister Narendra Modi that balance lying in Compensation Cess Credit Ledger as on September 21, 2025 be allowed to be transferred to IGST/ CGST credit ledger. Such balance may then be utilised for discharge of regular GST liability (CGST/SGST/IGST), FADA said in the letter. With the GST Council subsuming compensation cess for automobiles (decision of September 3, 2025) and implementation from September 22, no fresh cess liability will arise on outward supplies, the automobile dealers representative said. FADA had written a similar letter on September 5 to the Finance Minister. www.thehindubusinessline.com, dt. 12-09-2025

Auto industry in a bind on compensation cess as GST 2.0 kicks in from Sept 22

The automobile industry is in a bind on the compensation cess issue and is still hoping for a reprieve from the government. The industry has already approached Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman over the last few days, seeking ways to recover an estimated Rs.2,500 crore to the dealers.

We are constantly in touch with the Finance Ministry and we are hoping for the best, Shailesh Chandra, President, Society of Indian Automobile Manufacturers (SIAM) told businessline on the sidelines of the SIAM's 65th annual convention here.

According to sources, the automobile industry representatives are again approaching the Finance Ministry on Friday with a request for an immediate solution to the compensation cess issue.

Higher tax

The recent changes in GST and the removal of the compensation cess on automobiles have created a significant challenge for car dealers in India, particularly regarding their existing stock. When dealers purchased vehicles from manufacturers before the change in the GST rate, they paid a higher tax that included both GST and a compensation cess. This cess amount was an input tax credit in their books, which they would adjust against the cess they collected from the final customer. But after the change in the rate with the cess now removed for most vehicles, dealers cannot charge this tax to customers from September 22 when the new GST rates kick in. However, they still have a large balance of cess credit on the cars they have in stock.

The Federation of Automobile Dealers Associations (FADA) has said that there would be an estimated cess loss of around Rs.2,500 crore to the dealers, if the government does not indicate any solution to recover them before September 22. Both original equipment manufacturers (OEMs) as well as dealers are stuck with the stock with high price and they will have to give reduced price to the customers after September 22.

Speaking at the FADA's Retail Conclave on Wednesday, Commerce Minister, Piyush Goyal assured the industry that he would discuss the compensation cess with the Finance Minister.

Auto industry sources said that each company has to bear losses worth crores of rupees if compensation cess was not paid off or some solution is not arrived at. For instance, sources at koda Auto Volkswagen India that has brands like Audi and Lamborghini, said that it would have compensation cess amounting to around Rs.300 crore with all brands put together.

In a letter dated September 8, automobile dealers have urged the Prime Minister Narendra Modi that balance lying in Compensation Cess Credit Ledger as on September 21, 2025 be allowed to be transferred to IGST/ CGST credit ledger.

Such balance may then be utilised for discharge of regular GST liability (CGST/SGST/IGST), FADA said in the letter.

With the GST Council subsuming compensation cess for automobiles (decision of September 3, 2025) and implementation from September 22, no fresh cess liability will arise on outward supplies, the automobile dealers representative said.

FADA had written a similar letter on September 5 to the Finance Minister.

www.thehindubusinessline.com, dt. 12-09-2025