The GST Council’s Fitment Committee has proposed raising the Goods and Services Tax (GST) on old and used electric vehicles from 12% to 18%, a move that could significantly affect the resale market for these vehicles.
The proposed GST hike would also extend to old and used electric vehicles (EVs), which are presently taxed at a reduced rate of 12% under notification No. 08/2018-Central Tax (Rate), dated January 25, 2018.
Currently, old and used vehicles are taxed based on the supplier’s margin, resulting in a relatively low effective tax incidence. The applicable GST rates are as follows: 18% for petrol, LPG, or CNG vehicles with an engine capacity of 1200cc or more and a length of 4000mm or above; 18% for diesel vehicles with an engine capacity of 1500cc or more and a length of 4000mm or above; and 18% for sports utility vehicles (SUVs) with an engine capacity exceeding 1500cc. All other vehicles, including electric vehicles (EVs), are taxed at 12% GST.
The Fitment Committee’s proposal to increase the GST rate for these “other vehicles” to 18% aligns with the existing tax structure for larger vehicles and SUVs. While new electric vehicles (EVs) currently benefit from a concessional 5% GST rate to support the growing sector, reclassifying second-hand EVs under the 18% slab could reduce their appeal to potential buyers.
Input parts and services used for the repair and maintenance of second-hand vehicles already attract 18% GST, which increases operational costs in the used car market. If the GST rate hike is implemented, the industry may face higher overall taxation on second-hand vehicle sales, potentially slowing down the demand in this segment.
The GST Council is expected to deliberate on this recommendation in its upcoming meeting to be held on December 20, and 21 in Jaisalmer, Rajasthan