GST on used vehicles: Know how 18% tax on selling old cars will affect you

As the country was busy figuring out the increased tax on caramelised popcorn, the 18 per cent Goods and Services Tax (GST) on selling old vehicles has grabbed eyeballs, with many discussing it how it would affect them. 

Earlier last week, the GST council decided to prescribe a single rate of 18 per cent on the sale of all old and used vehicles including EVs (Electric Vehicles). However, the decision has sparked widespread confusion among the potential sellers, as to how much tax they will have to incur. 

Union Finance Minister Nirmala Sitharaman, addressing a Press Conference, said, "It is on that margin, the value between purchased price and resale price. Bought it for ₹12 lakh, selling it for ₹9 lakh in the name of a second-hand used vehicle, on the margin only this 18% has been put, as would be for any used car. So it is on the margin and not the entire amount at which the car is being sold". 

Pertinent to note that the GST only applies to businesses who want to resell their vehicles, including EVs. If an individual sells an old and used car to his family member/friend/relative/another individual, he is not obliged to pay the GST on the same. 

Here are some instances 

Scenario 1: If you are a private seller who purchased a car at Rs 10,00,000, now re-selling it to a friend for Rs, 8,00,000. No matter how much profit you make or loss you bear, there is no GST involved in this case as you're a private seller and not a business entity. 

Scenario 2: If you purchased a car at Rs 10,00,000 and are selling it for Rs 7,00,000 to a business house, you are yet not liable to pay any GST since the margin is negative. 

Scenario 3: If a business entity sells a car for Rs 10,00,000, that was bought for Rs 12,00,000, it will have to pay GST on the margin, that is, Rs 2,00,000. 

“The sale price - Purchase value [after reducing depreciation]. In case the value is negative, then no GST would be payable. The above is subject to the condition that the registered person selling the car is not claiming any Input Tax credit on purchase of the car,” Pankaj Jain, Tax Partner, EY India, was quoted as saying by ET. 

Moreover, providing details on the same, BJP IT cell head Amit Malviya stated, "Importantly, this tax rate applies only to registered persons (typically businesses involved in the trade of old and used vehicles) and does not apply to unregistered persons (the general public).”