Updated on: December 27th, 2024 2:45 PM

GST on Used Cars: New 18% Tax Rate Explained

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 Sale of Old Cars: An Overview

The sale of used cars is subject to GST, but the tax application differs from that of new cars. For new cars, GST is charged at the full sale price at the point of sale. However, in the case of used cars, GST is primarily governed by the margin scheme, which applies the tax to the profit or margin the seller makes from the sale rather than the full sale price.

GST rules for used cars

Before delving into the details of the GST on used cars, let's clarify a few key concepts:

• Margin Scheme: Under the margin scheme, GST is charged only on the difference between the purchase price and the sale price of the used car. This means the tax applies only to the profit margin (difference), not to the entire sale price of the car.
• Input Tax Credit (ITC): ITC is not applicable in the case of used cars under the margin scheme. Typically, businesses can claim a credit for the GST paid on inputs, but when selling used cars, the seller cannot claim any input tax credit on the purchase of the vehicle.
• GST Rates on Used Cars: The GST Council has decided to apply a uniform 18% GST on all used vehicles, simplifying the tax structure that previously ranged from 5% to 28%.

Applicability of GST on the Sale of Old Cars 

The applicability of GST (Goods and Services Tax) on the sale of old cars varies depending on whether the seller is a GST-registered dealer or an unregistered individual. Here's a detailed look at the different scenarios:

For Unregistered Sellers:

When an individual who is not registered under the GST system sells their used car, the transaction is generally exempt from GST. In simple terms, if a person sells their old car for personal reasons and they are not registered for GST, there is no obligation to collect GST on the sale price.

For Registered Dealers:

The situation changes when a GST-registered dealer sells a used car. Since registered dealers are engaged in the regular business of buying and selling vehicles, these transactions fall under the definition of a "supply of goods" according to GST regulations. Therefore, registered dealers must charge GST on the sale of pre-owned cars.

GST Applicability Based on Seller Type and Transaction Details

The following table outlines GST applicability under different scenarios:

Seller’s Usage Type	Is Seller Registered?	Is the Buyer Registered?	GST Applicability
Business	No	No	No
Business	No	Yes	Yes (reverse charge)
Business	Yes	No	Yes
Personal	No	No	No
Car Dealer	Yes	No	Yes

Also read: GST Rate for Cars

What is the GST rate for selling second-hand cars?

The GST rate on the sale of used cars has been standardised at 18%, making it applicable uniformly across all types of second-hand vehicles. This includes vehicles powered by petrol, diesel, or electric vehicles (EVs). Prior to this update, the GST rates for used cars varied significantly depending on the type of vehicle and the seller's registration status.   The new 18% GST will only apply to the profit margin of the dealer, which means that if the vehicle is sold at a loss, no GST will be charged.  
Also read: GST Rates for Different Goods and Services in India - Slabs, Rates, & Revision

GST Rules for Used Cars: Key Changes

The revised GST guidelines for used cars include several important points that buyers and sellers should understand:

• Unified 18% Tax Rate: The GST rate used cars sales has now been unified to a single rate of 18%. This new rate applies to all used vehicles, whether petrol, diesel, or electric cars (EVs).
• Tax Applied on Profit: GST is applied to the difference between the selling price and the purchase price, essentially taxing the profit margin made by the seller. For example, if a used car is bought for ₹10 lakh and sold for ₹12 lakh, the GST is calculated on the ₹2 lakh profit.
• No GST on Private Sales by Individuals: GST is applicable only when the sale is made by a GST-registered dealer. If an individual sells their old car privately, GST does not apply to the transaction.
• Impact on Pricing: With the new 18% tax rate, the cost of used cars may increase, especially for those resold by dealers who are likely to pass on the tax to the buyers.
• Applicability to Electric Vehicles: The 18% GST is now applicable to all types of used vehicles, including Electric Vehicles (EVs). This ensures that the tax structure remains consistent across different vehicle types, from traditional petrol and diesel cars to EVs.

Who Is Affected by the 18% GST Rule on Second-Hand Cars?

The 18% GST rate for selling second-hand cars applies specifically to GST-registered dealers, such as businesses or companies actively engaged in the buying and selling of used cars and similar entities operating in the resale market that fall under this rule. This ensures proper compliance with GST rules for used cars and streamlines the taxation process for second-hand car transactions.

Example of GST Calculation on Used Cars:

If a car dealer purchases a second-hand vehicle for ₹10 lakh and resells it for ₹12 lakh, the profit margin here is ₹2 lakh. Under the current guidelines for used car sale GST, the 18% GST rate is applied solely to the ₹2 lakh profit, leading to a tax liability of ₹36,000.

What Does the 18% GST Mean for Buyers?

For consumers, purchasing a car from a GST-registered dealer or platform will likely mean a slightly higher price, as the 18% GST on used cars is added to the dealer's profit margin. When buying from a GST-registered business, such as Cars24 or Spinny, the tax is usually included in the final bill to provide transparency about the cost.

Impact on Private Sales:

If you’re buying or selling a used car directly through a private sale (i.e., between two individuals), the GST on second-hand vehicles does not apply. These transactions remain exempt, as GST rules for used cars focus on dealers, not private sellers.

Is This a New Tax?

No, this is not a new tax. The change lies in the GST rate on used cars, which has been revised to 18%. Previously, some second-hand vehicles attracted a 12% GST, but this has now been standardized at a higher rate for certain categories, including:

• Electric Vehicles (EVs): Regardless of engine specifications.
• Petrol Vehicles: These vehicles have an engine capacity of 1200 cc or more and lengths exceeding 4000 mm.
• Diesel Vehicles: These vehicles have an engine capacity of 1500 cc or more and lengths exceeding 4000 mm.
• SUVs: These are defined by specific dimensions and engine power as per GST rules for used cars.

What if the Margin is Negative? Does GST Apply to Losses?

No, GST does not apply to losses. The GST on used cars is only levied on the profit margin. If the difference between the selling price and the car's depreciated value is negative, no GST is payable. Example of GST calculation on used cars:

• Car’s purchase price: ₹15 lakhs
• Car’s depreciated value: ₹12 lakhs
• Car’s selling price: ₹10 lakhs
• Margin: ₹10 lakhs - ₹12 lakhs = (-₹2 lakhs)

Since the margin is negative, no GST is payable in this scenario. This ensures that businesses or GST-registered dealers do not pay tax on losses incurred during the sale of second-hand vehicles. This provision eliminates concerns about being taxed on negative margins, aligns with fair taxation principles and streamlines GST rules for used cars. 

GST on Second Hand Vehicles: How It Applies to the Sale of Old Cars

• 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.
• 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.
• 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 on Sale of Old Cars in Different Scenarios

• Sale of Old Cars as Part of Business Activity: When a car dealer sells an old car as part of their regular business, GST is applied at 18% on the profit margin. This applies if the car dealer is registered under GST and follows the margin scheme.
• Sale of Old Car by Individual Owners: When private individuals sell used cars directly to other individuals or buyers, no GST is applicable unless the seller is registered under GST and sells cars as part of a business.
• Sale of Old Car via Auction: In the case of an auction, the rules for GST depend on the nature of the auction. If a GST-registered car dealer or an authorized entity conducts the auction, the sale is subject to 18% GST on the margin. If the auction is conducted by an unregistered seller, no GST is applicable.
• Sale of Old Cars through Car Dealerships: Car dealerships often buy used cars from individuals and sell them to new buyers. In this case, the dealership may apply the margin scheme and charge 18% GST on the profit margin earned from the sale. They are not eligible for the input tax credit on the purchase of the vehicle.
• Sale of Old Cars to Exporters: If an old car is sold to an exporter who intends to export the vehicle outside India, the sale may qualify, meaning no GST will be levied on the sale. Certain documentation and compliance requirements must be met to avail of this benefit.

Important Considerations

• For Dealers: GST is applicable to the profit margin, ensuring that tax is levied only on the difference between the purchase price and sale price of the used car.
• For Private Sellers: If selling a car privately (without a GST registration), no GST is applicable.
• For GST-Registered Dealers: They must charge 18% GST on the margin, which is the difference between the sale price and purchase price of the used vehicle.</li>

How GST on Used Cars Has Changed Over Time

Used car sale GST has evolved significantly since the introduction of GST in India, reflecting adjustments to address industry concerns and market dynamics.

• Up to 12th October 2017: Initially, load cars were subject to a hefty 28% tax plus cess, resulting in considerable pushback from the industry due to high tax burdens.
• 13th October 2017: In response to these concerns, the GST rate was reduced to 18.2% for motor vehicles bought before the GST era, provided no tax credit was claimed when they were sold or leased after GST's introduction.
• 24th January 2018: A new notification further revised the rates, introducing a 12% GST for smaller vehicles and 18% GST for larger vehicles, based on the vehicle type. This GST on the sale of used cars notification applied to vehicles purchased both before and after GST came into effect.
• Latest Change: Under the most recent GST framework, all old cars sold by GST-registered dealers will now attract a uniform 18% GST rate, simplifying the tax structure and ensuring consistency across the resale market.

 Key Takeaways

• GST on Used Cars: The tax applies exclusively to GST-registered dealers, not to private individuals engaged in direct sales.
• Tax on Profits Only: GST is levied only on profits, ensuring no tax is payable if the margin is negative (i.e., when selling at a loss).
• Revised GST Rate: GST on second hand vehicles has been increased from 12% to 18%, simplifying the tax structure and ensuring consistency across vehicle categories.

FAQs

1. Is GST applicable on the sale of used cars?

Yes, GST is applicable on the sale of used cars. The rate depends on whether the car is sold by a registered person or a non-registered person. When sold by a registered person, the GST rate on sale of used car is generally 18%, but there are specific conditions for this.

2. What is the GST rate on used car sales?

The GST rate on the sale of used cars is typically 18%. However, this rate can be reduced under certain conditions, such as the application of the margin scheme, which allows for GST only on the profit margin instead of the full selling price.

3. Are there different GST rates for used car sale and electric vehicles?

Yes, the GST rate on electric vehicles (EVs) sold as used cars is lower than that for conventional used cars. The GST rate for used electric vehicles is 5%, as per the current tax rules.

4. What is the GST rate on the sale of a used car by a company?

GST on the sale of used cars by a company is subject to the same rates as other sales, which is generally 18%. However, if the car was used for business purposes and the company has already claimed input tax credit, the sale may be taxed differently under the margin scheme.

5. What are the GST implications for selling a used car?

When selling a used car, the seller must account for GST if they are a registered person. The GST on used cars is calculated on the margin (difference between selling price and purchase price) under the margin scheme. This reduces the overall GST burden.

6. Is GST applicable on the sale of used cars by a registered person?

Yes, GST is applicable on the sale of used cars by a registered person. The GST rate on sale of used car can be 18%, but if the margin scheme applies, it is calculated on the margin instead of the full sale price.

7. What is the GST on the sale of a used car for business purposes?

If a car was used for business purposes and is sold, GST is applicable. The sale will be subject to the GST rate on used car sales, but the seller can claim the input tax credit (ITC) for the GST paid when the car was purchased if the car was used for business.

8. How is GST calculated on the sale of used cars?

GST on the sale of used cars is calculated either on the full selling price or on the profit margin, depending on whether the seller is using the margin scheme. If the margin scheme applies, GST is charged only on the difference between the purchase price and the selling price.

9. What does the GST sale of used cars notification entail?

The GST sale of used cars notification provides detailed guidelines on how GST applies to the sale of used vehicles. It clarifies the use of the margin scheme and outlines when GST is applicable on used cars, including any exemptions or reductions for electric vehicles.

10. Are there any special rules for GST on the sale of second-hand cars?

Yes, second-hand car GST rules are specifically designed to minimize tax burden for dealers and individuals. These rules focus on the margin scheme, where GST is applicable only to the profit margin made on the sale instead of the entire value of the car.