Car prices, including those of mass market small ones, are set to go up as Finance Minister Arun Jaitley today proposed to levy an infrastructure cess of up to 4 per cent on various kinds of vehicles.

Diesel vehicles would see the highest increase in prices.

The Finance Minister proposed a cess of 1 per cent on small petrol, LPG and CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other high-powered vehicles and SUVs.

Jaitley also proposed "to collect tax at source at the rate of 1 per cent on purchase of luxury cars exceeding value of Rs ten lakh and purchase of goods and services in cash exceeding Rs two lakh."

"The pollution and traffic situation in Indian cities is a matter of concern. I propose to levy an infrastructure cess of 1 per cent on small petrol, LPG and CNG cars, 2.5 per cent on diesel cars of certain capacity and 4 per cent on other high engine capacity vehicles and SUVs," Jaitley said while unveiling the Budget 2016-17 in Lok Sabha today.

Providing details, he said petrol/LPG/CNG driven motor vehicles of length not exceeding 4 meter and engine capacity not exceeding 1200cc would attract a cess of 1 per cent.

He proposed to levy a cess of 2.5 per cent on diesel driven motor vehicles of length not exceeding 4 meter and engine capacity not exceeding 1500cc.

Other higher engine capacity and SUVs and bigger sedans would, however, attract a cess of 4 per cent, Jaitley added.

"Three-wheeled vehicles, electrically operated vehicles, hybrid vehicles, hydrogen vehicles based on fuel cell technology, vehicles which after clearance have been registered for use solely as taxi, cars for physically handicapped persons and vehicles cleared as ambulances or registered for use solely as ambulance will be exempt from this cess," Jaitley said.

No credit of this cess will be allowed, and credit of no other duty can be allowed to pay this cess, he added.

Jaitley, however, gave some relief to the environment friendly vehicles. "The exemption rate of duties which existed on parts of environment friendly vehicles with expiry on March 31 this year I am planning to continue that," Jaitley said.

Last year the government had introduced FAME-India (Faster Adoption and Manufacturing of Hybrid and Electric vehicles) scheme in the country as part of the National Electric Mobility Mission Plan.

The scheme, which was launched in April last year, envisages Rs 795 crore support in the first two fiscals starting with the current year.

As far as excise duties are concerned, currently, small cars that are less than four meters in length attract excise duty of 12.5 per cent, while cars with more than four meters length but with engine of less than 1,500 cc capacity attract a duty of 24 per cent.

Further, vehicles with engine capacity of more than 1,500 cc are charged an excise duty of 27 per cent and while those with ground clearance of more than 170 mm attract an excise duty of 30 per cent.