GST on Used Cars Increased to 18%: How the Tax Will Be Applied to Buying and Selling Old Cars; Here’s the Breakdown

GST Calculation for Buying or Selling Used Cars:

The GST Council, chaired by Finance Minister Nirmala Sitharaman, has increased the Goods and Services Tax on used vehicles from 12% to 18%, sparking debates and speculation. However, misinformation about the policy’s impact on buyers, sellers, and dealers has been circulating.

Changes in GST on Used Cars:

The GST Council’s decision imposes an 18% tax rate on specific categories of used vehicles. Below are the categories affected by this change.

Vehicles Subject to 18% GST

•Electric Vehicles (EVs)

•Petrol Cars: Engine capacity over 1,200 cc and/or length exceeding 4,000 mm

•Diesel Cars: Engine capacity over 1,500 cc and/or length exceeding 4,000 mm

•SUVs

Vehicles in the 12% GST Bracket

Cars with smaller engine sizes and shorter lengths as specified above.

Who Needs to Pay GST?

1.Individual-to-Individual Sales

No GST is applicable for private sales between individuals. For example, selling a car directly to a friend is GST-free.

2.GST-Registered Dealers and Platforms

GST at 18% applies only to GST-registered dealers or platforms, such as Cars24, Spinny, OLX, and other similar businesses.

Margin-Based GST Calculation

GST on used cars is calculated based on the profit margin, i.e., the difference between the selling price and the depreciated value of the car.

•If the Margin is Positive (GST Payable)

Example:

•Purchase Price: ₹10 lakh

•Selling Price: ₹12 lakh

•Margin: ₹2 lakh

•GST Payable: 18% of ₹2 lakh = ₹36,000

•If the Margin is Negative (GST Not Payable)

Example:

•Purchase Price: ₹15 lakh

•Depreciated Value: ₹12 lakh

•Selling Price: ₹10 lakh

•Margin: ₹10 lakh – ₹12 lakh = (-₹2 lakh)

•GST Payable: None

Dealers are taxed only on their profit margins and not on losses.

FAQs About the GST Hike on Used Cars

1.Will the GST hike increase used car prices for buyers?

•Not for personal sales. However, buying from a GST-registered dealer may result in higher costs due to the increased tax on dealer profits.

2.Does the GST hike apply to electric vehicles?

•Yes, used electric vehicles are also subject to 18% GST.

3.Are small and compact cars affected by the 18% GST?

•No, smaller cars with engine sizes and lengths below the specified benchmarks qualify for the 12% GST rate.

4.Does GST apply to used cars sold at a loss?

•No, GST is not applied when a car is sold below its depreciated value.

Impact on the Market

This policy mainly affects car dealers and resale platforms, such as CarDekho or showrooms, as they must pay the increased GST on profits. Some of this additional cost may be passed on to consumers. However, private individual sellers remain unaffected since GST does not apply to personal sales.