During the GST council meeting on Saturday, December 21, Finance Minister Nirmala Sitharaman proposed a unified 18% GST rate on the sale of all old and used vehicles, a shift from the previous tax range of 5% to 28%. She explained, “Suppose you buy a car for Rs 12 lakh and sell it for Rs 9 lakh, then 18% GST will be applicable on Rs 3 lakh.” This proposal has sparked concerns, with critics pointing out that it effectively means “pay tax on the loss.”
The proposal has been misinterpreted, leading to widespread speculation and viral reels suggesting that sellers would have to pay tax on their loss, creating confusion about the new tax structure. To address these concerns, we have created this blog to clarify all doubts and misconceptions.
Who Does This Rule Apply To?
The 18% GST on used cars is applicable only to GST-registered dealers—businesses or companies that buy and sell used vehicles. This includes platforms such as Cars24, Spinny, and other similar companies.
For instance, if a car dealer buys a used car for ₹10 lakh and sells it for ₹12 lakh, the profit margin of ₹2 lakh will attract an 18% GST, which will be charged on the ₹2 lakh profit.
What Does This Mean for Buyers?
For consumers, purchasing a used car from a GST-registered dealer may lead to a slightly higher price due to the additional 18% GST. The tax will be included in the final bill when buying from a GST-registered platform.
However, if you’re buying or selling a used car directly between individuals (private sale), this GST will not apply.
Is This a New Tax?
No, it is not a new tax. What has changed is the GST rate. Previously, some used cars were taxed at 12%, but the rate has now been increased to 18% for specific vehicle categories, including:
– Electric Vehicles (EVs)
– Petrol vehicles with an engine capacity of 1200 cc or more and a length of 4000 mm
– Diesel vehicles with an engine capacity of 1500 cc or more and a length of 4000 mm
– SUVs
What if the Margin Has Been Negative? Does GST Apply to Losses?
No! GST is only levied on profits. If the difference between the selling price and the car’s depreciated value results in a loss (i.e., a negative margin), GST is not applicable.
For example:
– Car’s purchase price: ₹15 lakhs
– Car’s depreciated value: ₹12 lakhs
– Car’s selling price: ₹10 lakhs
– Margin: ₹10 lakhs – ₹12 lakhs = (-₹2 lakhs)
In this case, no GST is payable because the margin is negative.
A Brief History of Used Car GST Rates
Before October 12, 2017, used cars were subject to a 28% GST + cess, which faced significant industry pushback.
On October 13, 2017, the tax rate was reduced to 18.2% for motor vehicles bought before GST implementation, with no tax credit applicable when sold or leased after GST was introduced.
Then, on January 24, 2018, a new notification revised the tax rate from 12% to 18%, depending on the vehicle type. This update applied to both pre-GST and post-GST vehicles.
With the latest change, all used cars sold by GST-registered dealers now uniformly attract an 18% tax rate.
Key Takeaways:
- The 18% GST on used cars applies only to GST-registered dealers, not private sellers.
- GST is charged only on profits, not on losses.
- The GST rate on used cars has increased from 12% to 18%.