GST applies only to registered businesses selling used vehicles, with an 18% tax on the margin of profit.
New Delhi, December 25: The Goods and Services Tax (GST) is not applicable when an individual sells an old or used vehicle to another individual, sources clarified on Sunday. GST will only be levied when registered businesses or entities involved in the resale of old and used vehicles are involved in such transactions.
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The clarification follows the GST Council’s recent recommendation to impose a uniform 18% GST on the margin of the sale price of all old and used vehicles, including electric vehicles (EVs), simplifying previously varied tax rates.
Understanding the GST Mechanism on Used Vehicles:
- No GST for Individual-to-Individual Sales: Private individuals selling old cars are exempt from GST.
- GST on Margin for Registered Sellers: Businesses reselling old cars must pay GST at 18% on the profit margin (difference between selling price and depreciated value).
Illustrative Scenarios:
- Scenario 1: Negative Margin — No GST Applicable
- Original Purchase Price: ₹20 Lakhs
- Depreciated Value: ₹12 Lakhs (₹20 Lakhs – ₹8 Lakhs depreciation)
- Selling Price: ₹10 Lakhs
- Result: Since the selling price is below the depreciated value, the margin is negative, and no GST is applicable.
- Scenario 2: Positive Margin — GST Applicable
- Original Purchase Price: ₹20 Lakhs
- Depreciated Value: ₹12 Lakhs
- Selling Price: ₹15 Lakhs
- Margin: ₹3 Lakhs (₹15 Lakhs – ₹12 Lakhs)
- GST Payable: ₹54,000 (18% of ₹3 Lakhs)
The GST Council emphasized that this uniform taxation approach simplifies compliance and eliminates confusion surrounding different tax slabs for traditional and electric vehicles.
Key Takeaways:
- Individual sales of old cars remain GST-exempt.
- Registered sellers must calculate GST only on the margin of profit during resale.
- A standard 18% GST rate now applies across all old and used vehicle categories, including EVs.
This move is expected to bring clarity and streamline GST compliance in the second-hand vehicle market.
