GST on Old and Used Cars: Applicable Only on Margin Over Depreciated Value
The Goods and Services Tax (GST) on old and used cars is now applicable only when the sale price exceeds the depreciated value of the vehicle, ensuring tax efficiency for businesses and consumers. Here’s everything you need to know about the latest GST changes on used vehicles, including electric vehicles (EVs).
GST Applicability for Used Cars
- Registered Sellers: A registered person selling an old or used vehicle will pay GST only on the margin earned. This margin is the difference between the selling price and the depreciation-adjusted cost price of the vehicle under the Income Tax Act, 1961.
- Unregistered Sellers: No GST applies when an individual sells an old or used car to another individual.
Key Scenarios for GST Calculation
- Negative Margin:
If the depreciated value of the vehicle exceeds the selling price, no GST is payable. - Example: A car purchased for ₹20 lakh depreciates to ₹12 lakh but is sold for ₹10 lakh. Here, the margin is negative (₹10 lakh - ₹12 lakh = -₹2 lakh), so GST does not apply.
- Positive Margin:
If the selling price is higher than the depreciated value, GST is levied at 18% on the margin. - Example: If the car is sold for ₹15 lakh with a depreciated value of ₹12 lakh, GST at 18% applies to the ₹3 lakh margin (₹54,000 GST).
- Direct Purchase Price Comparison:
For cases where no depreciation is claimed, GST is payable on the difference between the selling price and the original purchase price. - Example: A car purchased for ₹12 lakh is sold for ₹10 lakh, resulting in no GST as the margin is negative. However, if sold for ₹14 lakh, GST at 18% applies on the ₹2 lakh margin (₹36,000 GST).
Revised GST Rates for EVs and Fossil-Fuel Cars
- The GST rate on all old and used vehicles, including EVs and small fossil-fuel cars, has been standardized at 18%, replacing the earlier variable rates.
- Impact on EVs: Previously taxed on the full sale value, GST on second-hand EVs will now apply only to the margin, reducing costs when margins are less than 27.78% of the purchase price.
- Impact on Fossil-Fuel Cars: The rate adjustment may slightly increase the cost of used small fossil-fuel cars by 0.6%–1.5%, depending on the margin.
Implications for Buyers and Sellers
- For Buyers:
- Second-hand EVs may become more affordable due to GST being calculated on margins rather than the entire sale value.
- Fossil-fuel car buyers may see a slight price increase, especially for vehicles with higher margins.
- For Dealers:
- Maintaining accurate transaction records is crucial for GST compliance.
- The new rules could streamline tax calculations, but businesses must adapt to the margin-based GST model.
Government’s Vision
This GST revision supports the government’s goals of reducing pollution and promoting environmentally friendly EV adoption. The changes are expected to encourage transparency in the rapidly growing second-hand vehicle market.
The shift to a margin-based GST calculation for old and used cars, especially EVs, is a welcome step for the automotive resale industry. It simplifies compliance for dealers, reduces costs for buyers, and aligns with the broader vision of environmental sustainability.