What Is Infrastructure Cess In India?

The road cess was first introduced in 1998-99 in India. Motor vehicle users used to pay the cess at the time of purchasing fuel for their vehicle. The funds collected through this cess was used by the government to take up road projects all over the country.

Fast forward to Budget 2016, and the road cess has now been replaced with road and infrastructure cess. Take a look at what this cess is, how much it is, and who pays it-

What is Infrastructure Cess?

The infrastructure cess is a type of tax imposed on the mass production of vehicles. Motor vehicle manufacturers are required to pay this tax to the government. The introduction of this cess in 2016 forced the vehicle manufacturers to increase the price of their offerings.

The applicable tax rate depends on the capacity and type of vehicle produced by the manufacturer. The funds collected by the government through this cess is then used for funding infrastructure projects in the country.

How Much is the Infrastructure Cess?

The infrastructure cess was announced during Budget 2016 by the Finance Minister Arun Jaitley. As per the official announcement by the Finance Ministry, the cess rates for different vehicles are as follows-

Type of Vehicle	Infrastructure Cess
LPG/CNG/Petrol-powered motor vehicles with engine capacities of up to 1,200cc and overall length less than 4 meters	1%
Diesel-powered motor vehicles with engine capacity of up to 1,200cc and overall length less than 4 meters	2.5%
Other vehicle categories with engine capacities of above 1,200cc and length above 4 meters	4%

Is the Infrastructure Cess Applicable on Two-Wheelers and Three-Wheelers?

No, the infrastructure cess is only imposed on cars and other heavy vehicles. Two-wheelers and three-wheelers are currently not required to pay any infrastructure cess.

However, two-wheelers and three-wheelers are still required to pay other excise duties as applicable under the Central Excise Act of 1944 and other applicable taxes.

How Does the Government Use Infrastructure Cess?

In the past, when road cess was applicable, the funds collected were only used by the government for the construction of roads in the country. But the introduction of road and infrastructure cess has expanded the scope of how the funds can be used.

Now, the cess collected by the government is used for the development and maintenance of national highways, rural and state roads, railway projects, improving railway safety, and other infrastructure projects in sectors like energy, communication, water and sanitation, and transport.

How Much Does the Government Collect on Average Through Infrastructure Cess?

In 2018-19, the government collected around Rs. 1.13 trillion through infrastructure cess. But with the growing popularity of four-wheelers among Indian families is expected to help the government earn more than Rs. 1.27 trillion through this cess is 2019-20.

The collection is expected to be higher for 2020-21. Also, there are reports which suggest that the government would soon subsume infrastructure cess in GST.

Infrastructure Cess in India

It is only with the help of funds contributed by the taxpayers that the government can build the nation. Through the collection of taxes the government can offer welfare schemes, strengthen defense capabilities of the country, and improve infrastructure.

Taxpayers should always pay taxes on time and effectively contribute to the progress of the country.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.