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The GST Council announced that starting December 21, 2024, an 18% GST will apply to the sale of all used cars, including electric vehicles (EVs). However, this tax is only applicable to registered businesses involved in buying and selling used vehicles. When individuals sell used cars to each other, no GST is required.
The GST is calculated on the margin, which is the difference between the selling price and the depreciated value of the vehicle. For example, if a registered business sells a used car for Rs 10 lakhs, with a purchase price of Rs 20 lakhs and depreciation of Rs 8 lakhs, no GST is payable because the margin is negative. However, if the selling price is Rs 15 lakhs, GST will be payable on the margin of Rs 3 lakhs at 18%, amounting to Rs 54,000.
This change aims to simplify the tax structure, as previously different GST rates applied to used vehicles and EVs. The new unified rate is expected to streamline the process for businesses.
This GST is found to be leviable at the hands of the dealers involved in used car trade. There will be ambiquity in arriving at the margin amount since such dealer when buying the used car from the individual users will not give any bill and the true purchase value cannot be arrived at. In most of the cases, the dealer used to carryout repairs and spend on insurance etc. and incur overhead expences for transport, marketing, etc. until he sells the car and barely he will be just left with a meagre brokerage amount . The notional margin value to be arrived will put them in harrasment at the hands of tax officials . This is one side. In an another case, a registered dealer involved in some other business buys a car for his official use and he cannot take input tax as he is not a dealer in car, and after applicable depreciation as per IT rules, he sells that car at the book value i.e. the depreciated value. The new GST calculation goes to say that if his purchase cost is 20 Lakhs, and the depricated value of the car is 2 lakhs, and he sells his car at 5 lakhs, he has pay tax for the margin value of Rs. 3 lakhs at 18% The dealer will face hardship to pay 18% without taking input tax.