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Understanding GST on the Sale of Old Cars in India
The Goods and Services Tax (GST) framework in India has specific provisions for selling old and used cars. Recent updates have introduced changes impacting businesses and individuals involved in such transactions.
GST Rates on Used Cars
As of December 2024, the GST Council has standardized the GST rate on the selling all old and used vehicles, including electric vehicles (EVs), to 18%. This replaces the previous rates, which ranged from 12% to 18% depending on the vehicle’s specifications.
Tax applicability depends on the transaction type, as outlined below
| Transaction Type | Description | Example | GST Applicable | Input Tax Credit(ITC) |
| Business-to-Business(B2B) | GST registered business selling to another GST-registered business. | Purchage Price : ₹5,00,000 Selling Price : ₹6,00,000 Margin : ₹1,00,000 GST(18%) : ₹18,000 |
Applicable on the margin. | Buyer can claim ITC if eligible. |
| Business-to-Consumer(B2C) | GST registered business selling to an individual consumer. | Purchage Price : ₹8,00,000 Selling Price : ₹9,50,000 Margin : ₹1,50,000 GST(18%) : ₹27,000 |
Applicable on the margin. | Consumer can not claim ITC. |
| Consumer-to-Business(C2B) | Unregistered individual selling to a GST-registered business. | Not Applicable: Since the seller is unregistered, GST is not charged. | Not Applicable. | Business can not claim ITC. |
| Consumer-to-Consumer(C2C) | Unregistered individual selling to another unregistered individual. | Not Applicable: Private sales between unregistered individuals are outside the GST framework. | Not Applicable. | Not Applicable. |
| Comapany-to-Consumer(Company to C) | A Company selling to an individual. | Purchage Price : ₹7,00,000 Selling Price : ₹8,50,000 Margin : ₹1,50,000 GST(18%) : ₹27,000 |
Applicable on the margin. | Consumer can not claim ITC. |
GST Calculation Example
A. Consider a scenario where a GST-registered dealer sells to GST-Registered Business/ Unregister a used car:
• Purchase Price: ₹10,00,000
• Selling Price: ₹12,00,000
• Margin: ₹2,00,000
• Applicable GST (18% on Margin): ₹36,000
In this example, the dealer would charge ₹36,000 as GST, making the total selling price ₹12,36,000
B. Scenario: Sale of a Used Car by a GST-Registered Business to Another GST-Registered Business/ Unregister.
A GST-registered company sells a used car that has depreciated, and the sale does not involve a margin or profit.
• Purchase Price (Original): ₹5,00,000
• Depreciated Value: ₹ 3,50,000
• Selling Price: ₹3,00,000
• GST is not applicable because the margin (Selling Price – Depreciated Value) is negative ₹ 50,000.
• If there’s no margin or negative margin (loss), GST is not charged on the transaction.
• In this example, the company would not charge GST, making the total selling price ₹3,00,000
Impact of GST Rate Hike
The increase in GST from 12% to 18% on used cars sold by businesses is expected to influence the used car market. Dealers may experience a slowdown in sales due to higher tax liabilities, potentially leading to increased prices for end consumers.
Key Considerations
Depreciation Claims: For businesses that have claimed depreciation on a vehicle, GST is payable on the margin between the selling price and the depreciated value. If the margin is negative, no GST is payable.
Input Tax Credit (ITC): Eligibility to claim ITC depends on the nature of the transaction and the parties involved. Generally, individual consumers cannot claim ITC, while businesses may be eligible under certain conditions.
Conclusion
The company has been charging GST on the sale of old cars; however, recent developments have brought clarity to the specific GST applicability and calculation methods for such transactions. The Goods and Services Tax (GST) Council has mandated an 18% GST on all sales of used or old vehicles, including electric vehicles, made by registered sellers. This decision aims to standardize the tax structure and ensure consistency across the industry.
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Regards,
CA. Akshay
Partner
Mobile: 8527238625
Email: infodelhi@corporategenie.in
