GST on Used Cars: Tax Only on Profit Margin Above Depreciated Value

GST will now be applicable on the sale of old and used vehicles by registered sellers only if the selling price exceeds the car’s depreciated value. Depreciated value is calculated based on the purchase price minus depreciation claimed under the Income Tax Act.

For example:

• If a car with a depreciated value of ₹12 lakh is sold for ₹10 lakh, no GST is payable since the margin is negative.
• If the same car is sold for ₹15 lakh, GST at 18% will apply only on the margin of ₹3 lakh.

Unified 18% GST Rate for All Used Cars

The GST Council recently set a uniform 18% tax rate for the sale of all used vehicles, including electric vehicles (EVs). Earlier, different rates were applied based on the vehicle type.

If an individual sells a used car to another individual, GST is not applicable.

Impact on Second-Hand EVs and Fossil Fuel Cars

GST on second-hand EVs, previously charged on the full sale value, will now only apply to the profit margin. This change could reduce the cost of used EVs if margins are low, making them more affordable. However, the GST hike could slightly raise prices for small fossil fuel cars, increasing costs by about 0.6–1.5%.

Compliance Requirements for Dealers

Dealers must maintain accurate records to comply with these changes. This revision could increase government revenue but may require businesses to adapt their pricing strategies.

This new approach to GST aims to balance environmental concerns, government revenue, and affordability in the used car market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.