
GST on Sale of Used Vehicles
Let us understand the GST on sale of used vehicle with some examples:
There is lot of talks and myths about GST on used vehicles, so we thought of writing an educational blog, to enlighten readers, so they know what is right and what is not.
What most of us know is that government has covered sale of used cars (& other vehicles) into the GST and rate of GST is 18%, as decided in 55th GST council meeting dated 21st December 2024 led by the finance minister Ms. Nirmala Sitharaman. But wait, this is not all what we are supposed to know.
Here are some other important aspects which will help you burst many myths which are roaming around these days on the subject:
- GST on used vehicles is not new: It was there since inception of when GST was implemented on 1st July 2017.
- Recently on 21st December 2024, GST council increased the rate of tax to 18%, on some used cars which were earlier charged at 12%. Previously variable rates were there, now uniform rate is 18% on sale of used vehicles.
- GST on sale of used vehicle is charged only under margin scheme i.e. the GST rate is applied only to margin/profit on sale of used vehicle.
- GST is not applicable on private sale of vehicle. GST is applicable to GST registered dealers of cars.
- GST is not levied if margin on sale of vehicle is negative i.e. the car is sold at a loss
Example 1:
Purchased by you: INR 12 lakhs
Sold to family/friend: INR 8 lakhs
Loss: INR 4 Lakhs
Result: No GST, since margin is negative (loss)
Example 2:
Purchased by You: INR 12 Lakhs
Sold to a car dealer: INR 8 Lakhs
Loss: INR 4 Lakhs
Result: No GST, since margin is negative (loss)
Example 3:
Purchase by you: INR 12 Lakhs
Sold to a car dealer: INR 8 Lakhs
Purchase Price for car dealer is: INR 8 Lakhs
Dealer sold the Car: INR 10 Lakhs
Profit of the dealer: INR 2 Lakhs
Result: GST 18% on profit earned by the Dealer i.e. 18% of INR 2 Lakhs (INR 36,000).
Key takeaways:
- Next time if you buy a used car from a registered dealer, make sure that GST is charged only on margin amount not the entire sale consideration.
- When you buy from a person who is not the car dealer, there is no need to pay GST
- Take tax invoice from car dealer. This can be very useful for transparency of cost, from the buyer’s point of view.
- While it may appear cost effective to enter in a transaction with private seller however there are some other things to consider like quality checks, ease of documentation, guarantee that usually comes when you buy from used car dealers.
Frequently asked question (FAQs)
Will the GST change on used cars change the pricing for buyers?
Yes, with the uniformity in GST being charged on used cars is expected to increase the price. While the GST directly impacts the sale of used car by registered dealer but prices are supposed to go up a little generally.
Are used electric vehicles (EVs) covered in GST?
Yes, used electric vehicles (EVs) are subject to 18% GST when sold by GST registered dealers.
What type of used vehicles will be charged GST?
Following categories of vehicles are covered under GST when sold by GST registered dealers:
- Electric Vehicles (EVs)
- Petrol vehicles with an engine capacity of 1200 cc or more and a length exceeding 4000 mm
- Diesel vehicles with an engine capacity of 1500 cc or more and a length exceeding 4000 mm
- SUVs
Old GST rate of 12% will continue to be levied for vehicles with lower engine capacity or length.
What is the purpose of GST council by recent change dated 21st December 2024?
Government through this move has tried to standardise the tax rates and simplify the tax system.
Isn’t 18% GST on sale of used car is too much?
Well, since tax is there, it will surely increase the cost however please note that the 18% tax is not on the value of car but only on the profit margin amount.
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