What Is the Goods and Services Tax (GST)?
The price of some goods and services is subject to the indirect federal sales tax known as the goods and services tax (GST). When a buyer purchases a product, they pay the sales price plus GST, which the business adds to the product's price. The company or seller collects the GST part and sends it to the government. It is also known as Value-Added Tax (VAT) in certain nations.
One tax rate is imposed nationwide in most GST-accounting nations because they have a single, unified GST system. In a nation with a single GST platform, state-level taxes (such as entertainment tax, entry tax, transfer tax, sin tax, and luxury tax) and central taxes (such as sales tax, excise duty tax, and service tax) are combined and collected as a single tax. These nations impose a single rate of taxation on almost everything.
Understanding GST on used cars: Rules, examples, and exemptions
At the latest GST council meeting on Saturday, December 21, Nirmala Sitharam, the finance minister, suggested a single 18% GST rate for the sale of all used and old cars. Previously, the rate ranged from 5% to 28%.
According to her, 18% GST will be applied to Rs 3 lakh if you purchase a car for Rs 12 lakh and sell it for Rs 9 lakh.
The phrase "pay tax on the loss" sounds like this.
Since then, there have been several rumors and viral videos claiming that sellers must pay taxes on the loss and confusion caused by the incorrect interpretation of the issue.
Who is affected by the 18% GST on used cars?
Only GST-registered dealers—businesses or companies that purchase and sell used automobiles—are subject to the 18% GST on used cars. This covers websites such as Spinny, Cars24, and others of a comparable nature.
For instance, a used car that a car dealer purchases for ₹10 lakh and sells for ₹12 lakh. Since the margin in this instance is positive, or ₹2 lakh, 18% GST will be applied to the 2 lakh profit.
What Does This Mean for Buyers?
Customers should expect a little higher price when purchasing a car from a dealer who is registered for GST because of the increased 18% GST. A GST-registered platform will add the tax to the final bill if you're buying from them.
But this GST isn't applicable if you're purchasing or selling a secondhand car directly between people (private transaction).
Will the 18% GST used car raise its price for buyers?
There is no GST due on the sale of an old car when customers acquire it from an individual. However, if customers purchase a used car from a dealer, showroom, OLX, or CarDekho, the situation will be different.
For instance, 18% GST will be applied to the margin, or ₹40,000, if a used vehicle platform buys a small automobile for ₹1 lakh and sells it for ₹1.4 lakh after repairs. Previously, the margin was subject to 12% GST.
Is This a New Tax?
It's not a new tax, sorry. The GST rate is what has changed. Previously, certain secondhand cars were subject to 12% GST; however, this has since been raised to 18% for
Electric vehicles (EVs), automobiles with a 4000 mm length and an engine displacement of 1200 cc or more,
SUVs and diesel vehicles with an engine displacement of 1500 cc or greater and a length of 4000 mm.
What if the margin has been negative? Does GST Apply to Losses?
No! If there is a negative difference between the selling price and the depreciated worth of an automobile, GST is not due and is solely applied to profits.
As an example, the
Purchase price of the car: Rs 16 lakhs
Depreciated value of the car: Rs 13 lakhs
The car is being sold for Rs 11 lakhs.
The margin is between Rs 11 lakhs and Rs 13 lakhs, or (-Rs 2 lakhs).
Since the margin is negative, there is no GST due in this case.
How is GST calculated on used cars?
Only the value that represents the supplier's margin—that is, the difference between its selling price and its depreciated value—will be subject to GST, according to news agency PTI.
For instance, a registered individual is selling a used car to a buyer for ₹10 lakh, whereas the buyer paid ₹20 lakh for the vehicle. He has claimed ₹8 lakh in depreciation under the Income Tax Act. Since the supplier's margin—that is, the difference between the selling price (₹10 lakh) and the depreciated value (₹12 lakh)—is negative in this instance, he is exempt from paying any GST.
If the selling price is ₹15 lakh and the depreciated value in the example above stays at ₹12 lakh, then GST will be due on the supplier's margin, or ₹3 lakh, at an 18% rate.
Impact on used car dealers/businesses
The business of used car sellers is probably going to be impacted by the increase in the GST rate. The used car dealership sector is projected to suffer as a result of the 50% increase in the GST rate from 12% to 18%.
In the fiscal year 2022–2023, used vehicle dealers sold around 51 lakh units of used cars, which was significantly more than the 42.3 lakh new cars sold during the same period, according to the India Blue Book report.
Impact on buyers of used cars
Because of the increase in the GST rate, used car prices are probably going to stay the same if buyers buy them from private sellers. However, if they buy them online, the price of the car will change.
The Bottom Line
Electric vehicles (EVs) and other secondhand cars are subject to the regular 18% Goods and Services Tax (GST), which streamlines the taxing process for these kinds of transactions.
Only sellers that are registered under GST legislation, such as companies who buy and resell cars, are required to pay GST. Since private sales between people are not subject to GST, only business transactions are subject to the tax burden.
The seller's margin, which is the difference between the vehicle's purchase or depreciation price, is the only factor used to compute the tax. No GST is due if the margin is negative, which indicates that the sale price is less than the vehicle's purchase or depreciated value.
We hope that this clears up any confusion regarding the 18% GST charge on secondhand autos. Spread the word and make sure everyone is aware of how the GST on secondhand cars operates by sharing this article.