GST on old, used cars FAQs: From impact on dealers and individuals to tax calculation—all your questions answered | Mint

The rate hike in the Goods and Services Tax (GST) on used cars has become the talk of the town after the GST Council, in its last meeting, prescribed a single rate of 18 per cent on the sale of old and used vehicles.

The increase in the GST rate has raised speculations about how the tax rate hike will impact the price of old vehicles and other implications.

The GST council, led by Finance Minister Nirmala Sitharaman, on Saturday, raised the taxes on the sale of small used cars, including Electric Vehicles (EVs), from 12 per cent to 18 per cent.

Will the GST rate hike impact the cost of used cars? Is the new tax rate applicable to EVs? Read below to know the answers to all GST on used cars FAQs.

Do I have to pay GST when selling my used car to another individual?

No, if an individual sells an old and used car to another individual, GST would not be applicable, reported PTI.

Will the 18% GST used car raise its price for buyers?

When buyers purchase a used car from an individual, there is no GST applicable on the sale. However, the scenario will differ if they buy a second-hand vehicle from platforms like CarDekho, OLX, showrooms, or a dealer.

For example, if a used car platform purchases a small car for ₹1 lakh and sells it for ₹1.4 lakh after repairs, then 18 per cent GST will be applicable on the margin, i.e. ₹40,000 earned. Earlier, 12 per cent GST was applicable on the margin.

The move is likely to raise the price of used cars. Some platforms are expected to absorb the higher taxes, but others are planning to pass on at least a part of it to retail buyers, reported Mint earlier.

What is the GST on used electric vehicles (EVs)?

A standard 18 per cent GST is applied to the sale of used vehicles, including electric vehicles (EVs) and SUVs.

Who is affected by the 18% GST on used cars?

The hike in GST on used cars from 12 per cent to 18 per cent is likely to impact car dealers and platforms which are in the business of selling used cars.

“This move to harmonize tax slabs is likely to impact startup margins in the short term, even though they will be able to offset this against input tax credits,” reported Mint’s Samiksha Goel and Sneha Shah.

The proposed amendment by the GST Council would likely bring down the cost of used electric vehicles, according to Saurabh Agarwal, tax partner, EY.

“The proposed change should not be looked at as a deterrent for second-hand EVs. This should, in turn, be a welcome step as it would likely bring down the cost for second-hand EVs (till the time margins earned are less than 27.78% of the purchase price),” told Agarwal to Mint earlier.

How is GST calculated on used cars?

According to news agency PTI, GST will apply only to the value representing the margin of the supplier, which is the difference between its selling price and its depreciated value.

Example: A registered person is selling an old and used vehicle to a person for ₹10 lakh, and his purchase price was ₹20 lakh. Under the Income Tax Act, he has claimed a depreciation of ₹8 lakh. In this case, he is not required to pay any GST as the margin of the supplier, i.e., the differential value of the selling price ( ₹10 lakh) and the depreciated value, which is ₹12 lakh, is negative.

In case the depreciated value in the above example remains the same at ₹12 lakh, and the selling price is ₹15 lakh, GST will be payable on the margin of the supplier, i.e., on ₹3 lakh at the rate of 18 per cent.

Impact on buyers of used cars

If buyers purchase used cars from individuals, then the rates are likely to remain unaffected because of the GST rate hike, but the old car price rate will be affected if purchased from online platforms.

Impact on sellers of used cars (individuals)

The GST rate hike is unlikely to impact individuals selling their used cars to another individual.

Impact on used car dealers/businesses

The GST rate hike is likely to impact the business of used car dealers. The GST rate hike from 12 per cent to 18 per cent, a 50 per cent increase, will likely to adversely impact the used car dealership industry.

According to the India Blue Book report, the used car dealers sold nearly 51 lakh units of old cars in the financial year 2022-23, far greater than the 42.3 lakh new cars sold in the same period.