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Infrastructure Cess

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Infrastructure Cess is a levy/tax imposed by the Union Government on the production of vehicles, at the rate of 1% on small petrol, LPG, CNG (gas based) cars, 2.5% on Diesel Cars of certain capacity and 4% on other higher engine capacity vehicles and Sports Utility Vehicles (SUVs), for the purposes of financing infrastructure projects.

Infrastructure cess has come into effect from 1 March 2016. No credit of this Cess will be available nor credit of any other tax or duty be utilized for paying the Cess.

Cess is exempted for certain motor vehicles such as three wheelers, electric vehicles, hydrogen /fuel cell based vehicles, vehicles certified to be used for physically challenged/ differently abled persons etc. Further, this is also exempted for other public utility transport vehicles like buses (which transport more than 10 persons) and cars /vehicles which are registered solely for serving as taxis or as ambulances.


Cess is imposed at the following rates:

a) 1% on Petrol/LPG/CNG driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1200cc;

b) 2.5 % on Diesel driven motor vehicles of length not exceeding 4m and engine capacity not exceeding 1500cc;

c) 4% on all categories of motor vehicles other than those exempted;


Legal provisions

Infrastructure Cess was announced in the Union Budget, 2016-17. A legal provision was made through the Finance Bill, 2016 (Chapter VII, clause 159) for levying the Cess @4%. On 1 March 2016, Central Board of Excise and Customs notified the exemptions / concessionary rates at which infrastructure cess is to be levied on certain motor vehicles falling under Tariff Heading 87.03 of the Central Excise Tariff Act, 1985.

Finance Bill defines infrastructure cess as a duty of excise levied and collected for the purposes of the Union Government for financing infrastructure projects, chargeable on the goods specified in the Eleventh Schedule to the Finance Act. Thus, the proceeds of the Infrastructure Cess would be retained by the Centre in its kitty and not be shared or distributed among the States.

Finance Minister imposed the cess while expressing concern over pollution and traffic situation in Indian cities. However, finance bill has specified the usage of the fund into the broad category of "financing infrastructure projects".

The cess is in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 or any other law for the time being in force.

The provisions of the Central Excise Act, 1944 and the rules made thereunder, including those relating to assessment, non-levy, short-levy, refunds, interest, appeals, offences and penalties, shall, as far as may be, apply in relation to the levy and collection of the infrastructure cess.


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