GST on Sale of Old & Used Cars: 18% GST Rate & Guidelines
In the recent GST council meeting held on Saturday, Dec. 21, the finance minister, Nirmala Sitharam, proposed a single 18% GST rate on selling all old and used vehicles, which previously used to vary between 5% and 28%.
She said, “Suppose you buy a car for Rs 12 lakh and sell it for Rs 9 lakh, then 18% GST will be applicable on Rs 3 lakh.”
This sounds like “pay tax on the loss.”
The situation has been interpreted wrong, and since then, there have been a lot of speculations and viral reels stating that sellers have to pay tax on the loss and confusion surrounding the new tax structure.
We have curated this blog to clear all your doubts and misconceptions.
Who Does This Rule Apply To?
The 18% GST on used cars applies only to GST-registered dealers—businesses or companies that buy and sell used cars. This includes platforms like Cars24, Spinny, and other similar companies.
For example, if a car dealer buys a used car for ₹10 lakh and its selling price is ₹12 lakh. In this case, the margin is positive, i.e., ₹2 lakh, so 18% GST will be charged on 2 lakh profit.
What Does This Mean for Buyers?
For consumers, buying a car from a GST-registered dealer will likely result in a slightly higher price due to the increased 18% GST. If you’re purchasing from a GST-registered platform, the tax will be included in the final bill.
However, if you’re buying or selling a used car directly between individuals (a private sale), this GST does not apply.
Is This a New Tax?
No, it’s not a new tax. What has changed is the GST rate. In the past, some used cars attracted a 12% GST, but this has now been increased to 18% for
- Electric Vehicles (EVs),
- Petrol vehicles with an engine capacity of 1200 cc or more & a length of 4000 mm,
- Diesel vehicles of engine capacity of 1500 cc or more & of a length of 4000 mm,
- SUVs.
What if the margin has been negative? Does GST Apply to Losses?
No! GST is only levied on profits and is not payable if the difference between the selling price and a car's depreciated value is negative.
For instance, the
Car’s purchase price: Rs 15 lakhs
Car’s depreciated value: Rs 12 lakhs
Car’s selling price: Rs 10 lakhs
Margin: Rs 10 lakhs - Rs 12 lakhs,i.e., (-Rs 2 lakhs)
Here, GST payable is none as the margin is negative.
A Brief History of Used Car GST Rates
Up to 12th October, 2017, used cars were subject to a hefty 28% GST+cess, which led to much industry pushback.
Later, on 13th October, 2017, this tax rate was reduced to 18.2% for motor vehicles bought before GST was introduced, and no tax credit was claimed if they were sold or leased after the introduction of GST.
Then, on 24th January 2018, a new notification was issued to revise the tax rate from 12% to 18%, according to vehicle type. This new notification applied to vehicles bought before GST and those bought after GST came into effect.
With the latest change, all used cars sold by GST-registered dealers will now uniformly attract an 18% tax rate.
Key Takeaways:
- GST on used cars applies only to GST-registered dealers (not private individuals).
- The tax is only on profits, not losses.
- The GST rate on used cars has been revised from 12% to 18%.
We hope the confusion surrounding the 18% GST rate on used cars has been clarified now! Share this article to help spread the word and ensure everyone understands how the GST on used cars works.
Stay informed, stay smart!