GST 2.0 Transition Hits Car Dealers with ₹2,500 Crore Loss in Cess

Car dealers across India face heavy losses as GST 2.0 cess changes leave unsold stock and blocked credits worth ₹2,500 crore.

The rollout of GST 2.0 has left automobile dealers across India grappling with a crisis. Despite rate cuts and the removal of the compensation cess, dealers are staring at losses estimated at ₹2,500 crore due to unsold inventory purchased at older tax rates.

Car showrooms in Delhi and other major markets are reporting empty floors, as customers—expecting sharp discounts—have held back purchases. The situation has been worsened by the 15-day shraadh or pitru paksha period, traditionally considered inauspicious for new purchases.

Dealers had stocked up ahead of the festive season, paying GST and cess at higher rates. With GST 2.0 eliminating the compensation cess, these vehicles are now difficult to sell. To move inventory, dealers are forced to offer discounts from their own margins, leading to significant working capital erosion.

The Federation of Automobile Dealers Association (FADA) has raised the issue with Finance Minister Nirmala Sitharaman. In its letter, FADA expressed concern over the unutilized balances in dealers’ electronic credit ledgers. “Once no further cess liability arises, these balances cannot be used against CGST, SGST, or IGST under the current law. Without a transitional pathway, credits risk lapsing, creating permanent losses and a sharp working-capital shock,” the body stated.

Industry insiders fear that unless the government provides clarity or relief, small and medium dealerships could face severe liquidity stress. For now, dealers are anxiously awaiting directions on whether refunds or transitional credit mechanisms will be introduced to soften the blow.