GST on used cars: How will new rules change tax on second-hand vehicle sales?
The decision by the GST Council to increase the GST rate on sale of second-hand cars from 12% to 18% significantly impacts businesses and buyers. This article highlights the exceptions, conditions, depreciation rules, margin scheme and eligibility for input tax credit applicable in the transaction.
INDC Network : Business : The GST Council's decision to increase the GST rate on sale of second-hand cars from 12% to 18% significantly affects businesses and consumers. This article highlights the exceptions, conditions, depreciation rules, margin scheme and eligibility of input tax credit applicable in the transaction.
Major recommendations of GST Council
| Category | Earlier GST rate | Increased GST rate | Apply margin scheme |
|---|---|---|---|
| Petrol vehicles ≥1200cc and length ≥4000mm | 12% | 18% | Yes |
| Diesel vehicles ≥1500cc and length ≥4000mm | 12% | 18% | Yes |
| electric vehicles (EVs) | 12% | 18% | Yes |
| Small petrol vehicles <1200cc and length <4000mm | 12% | 12% | Yes |
GST applicability rules and margin calculation
| Status | Purchase Price (INR) | Depreciation (INR) | Selling Price (INR) | Margin Price (INR) | Applicable GST (18%) |
|---|---|---|---|---|---|
| No depreciation claimed | 5,00,000 | - | 7,00,000 | 2,00,000 | 36,000 |
| Depreciation was claimed | 12,00,000 | 2,00,000 | 9,00,000 | -1,00,000 | Not applicable |
| Depreciation was claimed | 12,00,000 | 2,00,000 | 11,00,000 | 1,00,000 | 18,000 |
Exemptions and rules in special cases
| Category | GST applicable or not? |
|---|---|
| Sold by an authorized dealer | Not applicable |
| With ITC by registered businesses | Applies to full sale price |
| Small cars (like Renault Kwid) | 12% GST applicable |
| Second hand car dealership | Apply margin scheme |
Relation of Depreciation and GST
| Year | Car Price (INR) | Depreciation rate | Price After Depreciation (INR) |
|---|---|---|---|
| 2023 | 10,00,000 | 10% | 9,00,000 |
| 2024 | 9,00,000 | 10% | 8,10,000 |
Margin Scheme Rules
- Second hand goods business only.
- ITC has not been claimed on the purchase.
- There should be no major change in the nature of goods.
- GST applicable only on positive margin.
Impact of GST rate hike
| Area of influence | Description |
|---|---|
| High tax burden | 18% GST now on high capacity petrol and diesel vehicles |
| Small cars are affordable | Only 12% GST is applicable on small cars |
| Dealer Operation | Detailed record-keeping and margin calculations are mandatory |
Revised GST rates on sale of second-hand cars add complexity for businesses, but attempt to make taxation transparent under the margin scheme. Businesses should pay attention to depreciation and ITC, while buyers should be aware of the impact of GST on the price of second-hand vehicles.
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