Introduction:
The Goods and Services Tax (GST) system in India has been a significant reform in the country’s taxation landscape. On December 21, 2024, the 55th GST Council, led by Finance Minister Nirmala Sitharaman, announced a major change: a unified GST rate of 18% on the sale of used cars, including Electric Vehicles (EVs). Previously, GST rates for used cars varied widely, ranging from 5% to 28%, depending on the vehicle type and the nature of the transaction. This decision has raised questions and confusion about GST on used cars. This article aims to explain the revised GST rules for old and used cars.
GST on Secondhand Vehicles: How It Applies to the Sale of Old Cars:
1 Sale by Registered Dealers:
When a GST-registered dealer sells an old car, GST is charged at 18% on the profit margin under the margin scheme. The dealer must maintain proper documentation for the purchase and sale prices. ITC is available for the dealer when purchasing the used vehicle. The tax is applied only to the margin or profit earned, not on the entire sale value.
2. Sale by Private Individuals (Not Registered Dealers):
If a private individual sells an old car to another individual, GST is not applicable unless the seller is regularly dealing in used cars as part of a business. In such cases, GST provisions would apply, and the individual would need to register under GST.
3. Sale of Old Cars by Non-Registered Dealers:
For individuals or businesses that sell used cars occasionally but are not registered under GST, no GST is applicable. However, if these individuals or businesses start selling cars regularly, they may be required to register under GST and follow the same procedures as GST-registered dealers
GST Applicability Based on Seller Type and Transaction Details:
| Seller’s Usage Type | Is the Seller Registered? | Is the Buyer Registered? | Gst applicability |
| Business | NO | NO | NO |
| Business | NO | YES | YES (RCM) |
| Business | YES | NO | YES |
| Personal | NO | NO | NO |
| Car Dealer | YES | NO | YES |
GST RATE:
As per the GST rules, the 18% GST slab is applicable to electric vehicles (EVs) as well as petrol cars with an engine capacity exceeding 1,200 cc or a length exceeding 4,000 mm. Additionally, diesel cars with an engine capacity over 1,500 cc or a length exceeding 4,000 mm, and SUVs are also subject to this tax rate.
GST Calculation:
GST will be applicable only when the margin is positive, if margin will negative, GST is not applicable.
Scenario:
- Type of Car: Small car (e.g., 1200 cc, less than 4 meters in length)
- Purchase Price/Deprecate value: ₹5,00,000
- Selling Price: ₹6,00,000
- Margin Amount: ₹6,00,000 – ₹5,00,000 = ₹1,00,000
- Applicable GST Rate: 12% (for small cars)
- GST on Margin: 12% of ₹1,00,000 = ₹12,000
- Selling Price: ₹6,00,000
- Add GST: ₹12,000
- Total Amount Payable: ₹6,12,000