GST applicable only on used car sales with positive margin; no tax applies on individual-to-individual sales margin

Government sources indicate that only "registered" people -- typically businesses involved with buying and selling used cars -- will be held liable for Goods and Services Tax on sales of old and used cars that generate profits, though only if their profits surpass $200.

GST applies when there is a positive margin or when the sale price exceeds acquisition costs. For vehicles claimed under depreciation, depreciation-adjusted value will be considered cost. Sources say in all other instances, price paid by seller for vehicle is taken as acquisition cost.

Individuals selling used vehicles directly to other individuals do not incur GST when selling it.

Updated on: December 24, 2024 22:56 (IST).

There was some ambiguity on whether GST would apply in cases where margin on used vehicle sales was negative and whether individual-to-individual used car transactions would also incur tax. (Express File Image).

GST only applies if there is a positive margin or when the sale price exceeds acquisition cost. For vehicles claimed for depreciation, depreciation-adjusted value will be used as the acquisition cost; sources indicate that in all other cases the selling price for the vehicle represents its true acquisition cost.

Individuals selling used vehicles to another individual do not owe GST.

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Last week, the GST Council met and decided that all used vehicles (including electric) sold are to be subject to one 18% tax rate. Prior to this decision, only petrol/diesel/LPG vehicles sold with 18% GST rates while all other types were charged only 12% - however this decision by GST Council sought to align GST rates across all forms of used vehicle sales including electric ones.

Previously, this decision had caused confusion within certain sectors regarding whether GST would apply in instances of negative margin used car sales and whether individual-to-individual car transactions would also incur taxes.

GST is due only if a registered person claims depreciation under the Income Tax Act...the GST payable only represents margins. Margin refers to the difference between consideration received for providing goods and their depreciated values on the date they were supplied - according to one source, if this margin is negative no GST will be payable.

GST is only due on the value that represents a seller's margin - that is, the difference between selling price and purchasing price - according to one source. When this margin is negative no GST will be applicable.

Government sources explained that in certain GST scenarios, no GST would apply. If for example an individual selling their used car for Rs 10 lakh when its original cost was Rs 20 lakh but depreciation claims totalled 8 lakh, no GST would be applicable as its value after deducting depreciation would fall to Rs 12 lakh, leading to a margin of negative Rs 2 lakh and thus exempting them from GST liability.

Rather, 18% GST would apply on any difference of Rs 3 lakh even though its original selling cost of Rs 20 lakh had decreased during its depreciated lifecycle.

Source: As an illustration of GST liability, consider an old vehicle sold at Rs 10 lakh to someone who paid Rs 12 lakh; no GST will be due as the margin is negative in this instance. In contrast, if its purchase price was Rs 20 lakh but its selling price was 22 lakh then GST must be payable on its margin, which amounts to Rs 2 lakh in this instance.