GST on Sale of Used Cars
The Goods and Services Tax (GST) regime in India, introduced on July 1, 2017, significantly impacted various industries, including the automobile sector. The sale of used cars has drawn particular attention under GST because of its evolving tax structure. Initially, used cars were subjected to the same tax slabs as new vehicles, causing concerns among dealers and buyers. However, after various representations from the industry, the government revised the GST rates for second-hand cars, offering clarity and relief to stakeholders.
GST on Sale of Used Cars : Tax Rates Applicable
Under the current GST regime, the tax rate on the sale of used cars varies depending on the type of vehicle and its engine capacity. As of the latest updates, the applicable GST rates for used cars are:
1. **Small Cars and SUVs** (with an engine capacity of up to 1500 cc): A GST rate of 12% is applicable.
2. **Luxury Cars and SUVs** (with an engine capacity above 1500 cc): These vehicles attract a GST rate of 18%.
The revised rates, which came into effect from January 25, 2018, provided relief as they were significantly lower than the initial GST rates of 28% that were applied uniformly on all vehicles, irrespective of their used or new status.
Margin Scheme for Dealers
GST on Sale of Used Cars, To further address industry concerns, the government introduced the **Margin Scheme** for dealers selling used cars. Under this scheme, GST is levied only on the difference between the selling price and the purchase price of the used car. This ensures that dealers are not taxed on the entire value of the car, which includes the original tax paid when the vehicle was first sold as new. For example, if a dealer purchases a used car for ₹5,00,000 and sells it for ₹5,50,000, GST is levied only on the margin of ₹50,000.
This scheme is a major relief for car dealers and ensures that buyers are not overburdened by tax while purchasing pre-owned vehicles.
Conditions for the Margin Scheme
Dealers wishing to avail of the margin scheme must adhere to certain conditions:
1. The input tax credit (ITC) should not have been availed by the dealer on the purchase of the used car.
2. The scheme is only applicable to registered dealers under GST, not to individual sellers.
Impact on Consumers
For consumers, the revised GST rates and the margin scheme mean that they can buy used cars at more affordable prices compared to the earlier tax regime. Lower GST rates have encouraged many buyers to opt for pre-owned cars as a cost-effective alternative to new vehicles.
HSN code for GST on Sale of Used Cars
|
S. No. |
HSN Code |
Description of Goods |
Rate |
|
1. |
8703 |
Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more. Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. |
9% |
|
2. |
8703 |
Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm
Explanation. – For the purposes of this entry, the specification of the motor vehicle shall be determined as per the Motor Vehicles Act, 1988 (59 of 1988) and the rules made there under. |
9% |
|
3 |
8703 |
Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles. Explanation. – For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above. |
9% |
|
4. |
87 |
All Old and used Vehicles other than those mentioned from S. No. 1 to S.No.3 |
6% |
Conclusion
The introduction of GST on the sale of used cars in India, combined with the Margin Scheme, has streamlined taxation for this sector. While buyers enjoy lower taxes and competitive prices, dealers benefit from reduced tax liabilities. This has provided a boost to the used car market in India, making it more structured and transparent. However, dealers must remain compliant with GST regulations and ensure proper documentation to avoid any discrepancies in tax filings.