Second-Hand Car New GST Rule Explained: Is 18% GST Applicable on Selling or Buying of Used Cars? Here’s What Buyers and Sellers Must Know
Mumbai, December 27: The GST Council has recently recommended a significant change in the tax structure for second-hand car sales, raising the Goods and Services Tax (GST) rate to 18 per cent. This decision, made during the 55th GST Council meeting on December 21, applies specifically to the margin between the purchase price and resale price of used vehicles, including electric cars. Union Minister Nirmala Sitharaman clarified that the new GST rule will not apply to the entire sale amount but only to the profit margin earned by the seller.
But what does this new rule mean for individuals looking to buy or sell second-hand cars? The confusion surrounding how GST will be calculated has led many to question whether it will increase the cost of used vehicles. According to Sitharaman, the tax would apply only on the margin, making it more manageable for sellers. However, this raises concerns about whether the increased tax rate will affect prices for used cars in the market. Here’s what it means for both buyers and sellers in the second-hand car market. GST Council Clarifies on Popcorn Taxation, Finance Minister Nirmala Sitharaman Says ‘Pre-Packed and Labelled Ready-To-Eat Snacks Will Attract 12% Tax’ (Watch Video).
Here’s What New GST Rule on Second-Hand Car Sales Mean
The GST Council has introduced an 18 per cent GST on the margin value of second-hand cars, including electric vehicles (EVs). This rule replaces the previous variable tax rates. Under the new regulation, GST is calculated only on the difference between the purchase price and the resale price (the margin), not on the entire sale amount. This change aims to simplify tax calculations and create a uniform system for all used vehicle sales. Thus, the tax will only apply to the profit made from reselling a used car rather than the entire transaction amount.
When Does GST Apply?
GST on second-hand car sales will only apply if there is a positive margin i.e., if the selling price exceeds the depreciation-adjusted cost price of the vehicle. For instance, if registered dealers or businesses that claim depreciation under Section 32 of the Income Tax Act must calculate GST on the margin. If a car was bought for INR 20 lakh and sold for INR 10 lakh with INR 8 lakh depreciation, the margin becomes negative (INR 10 lakh – INR 12 lakh), meaning no GST is payable. But if the same car is sold for INR 15 lakh, the margin becomes positive (INR 15 lakh – INR 12 lakh), and GST will apply to the INR 3 lakh margin at an 18 per cent rate. Income Tax Cut for Middle Class in Union Budget 2025-26? Report Says Government May Slash Tax Rates for Those Earning up to INR 15 Lakh.
Impact on Buyers and Sellers
For private individuals selling cars, no GST will be levied, as the rule applies only to registered sellers. However, for dealerships and online platforms selling used cars, the tax can impact resale prices. For example, if a platform buys a second-hand car for INR 5 lakh and sells it for INR 6 lakh after repairs, the margin of INR 1 lakh will attract an 18 per cent GST, amounting to INR 18,000.
This increase in tax from the previous 12 per cent rate could slightly raise the prices for buyers, although industry experts suggest that the impact on second-hand EVs will likely be minimal. The new rule is expected to streamline the tax process but may increase costs for retail buyers purchasing through platforms and dealerships.
(The above story first appeared on LatestLY on Dec 27, 2024 01:01 PM IST. For more news and updates on politics, world, sports, entertainment and lifestyle, log on to our website todaynews24.top).
