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An increased 18% GST rate on the margin value of the used car sales has been recommended by the GST Council for petrol vehicles (1200 cc or more), diesel vehicles that are 1500 cc or more, and all Electric Vehicles (EVs).
The revised tax rates will be applicable to vehicles bought by businesses as well as on the value representing the margin of a supplier.
The GST Council recently recommended an 18% GST rate on the margin value of used car sales for specified petrol, diesel and EVs. It must be noted that 18% GST was already applicable for the sale of old and used petrol vehicles (1200 cc or more engine capacity and length of 4000 mm or more) and diesel vehicles (1500 cc or more engine capacity and length of 4000 mm and more).
The revised tax rates will be applicable to vehicles bought by businesses as well as on the value representing the margin of a supplier (difference between purchase and selling price, which includes depreciated value if benefits claimed). The provision doesn’t apply when the exchange takes place between individuals.
An increased 18% GST rate on the margin value of the used car sales has been recommended for petrol vehicles (1200 cc or more), diesel vehicles that are 1500 cc or more, and all Electric Vehicles (EVs), The Economic Times reported.
The report added that the GST council has not specified any new reverse charge liability or liability to tax on vehicles sold by unregistered sellers to registered or unregistered persons. However, the rule does not apply to the sellers, who are non-GST registered.
Individuals, who look forward to buying and selling old vehicles, will continue to be taxed at 12%, Moneycontrol reported.
So far, there is no GST on the sale of used cars by individuals, who don’t hold GST registration, to another person, or to the used cars dealers, said Samsuddha Majumder, tax partner, Trilegal.
This rule applies equally to all car options — petrol, diesel and EVs.
“Dealers who are buying and selling used cars may take benefit under the ‘margin scheme’ offered under the GST regime, if they do not avail input tax credit on the purchase of the cars,” The Economic Times quoted Majumder as saying.
The expert noted that dealers, under this scheme, are allowed to pay GST only on the difference between the sale price as well as the vehicle’s purchase price or the depreciated value. “No GST is payable in case the margin of the dealer is negative, i.e., the dealer is selling the car at a loss,” Majumder added.
Benefit of depreciation
Depreciation is claimed through the written down value (WDV) method, according to the Income Tax Act, 1961.
Through this method, people deduct a specified percentage of the car’s value each year after the purchase and take the price down. For example, if a vehicle is bought for Rs 10 lakh this year, then its value will come down to Rs 9 lakh next year, considering the rate of depreciation is about 10%.
In cases where such a margin is negative, no GST is payable.
The GST needs to be paid only on the value which represents the margin of the supplier — the difference between selling and purchase price. Again, if such margin is negative, no GST is payable.
