GST Alert! Buying or Selling Used Cars? Here’s How the New 18% Tax Rate Impacts You!

The Goods and Services Tax (GST) Council has approved an increase in the GST rate on the sale of old and used vehicles from 12% to 18%. This revision applies to vehicles sold by businesses that claim depreciation and sell vehicles on a margin basis. However, individual buyers and sellers of old vehicles will continue to enjoy the lower 12% GST rate, ensuring affordability in personal transactions.

Tax Implications for Different Vehicle Categories

Under the revised system, certain categories of vehicles are already taxed at 18%, including:

• Petrol, LPG, and CNG vehicles with engine capacities of 1200cc or more and lengths exceeding 4000mm.
• Diesel vehicles with engine capacities of 1500cc or more.
• SUVs with engine capacities exceeding 1500cc.

Now, businesses selling used electric vehicles (EVs) will also fall under the 18% bracket. Previously taxed at 12%, this change aligns with the broader tax structure for vehicles.

The Impact on the Electric Vehicle (EV) Market

The increase in GST on used EVs is particularly significant. While new EVs enjoy a reduced 5% GST to promote adoption, the higher 18% rate for used EVs may affect their appeal in the second-hand market. Businesses involved in the resale of EVs might face challenges as operational costs rise due to increased taxes on input parts and services for repair and maintenance, which already attract 18% GST.

For Businesses: Adapting to Higher Costs

Businesses reselling old vehicles after repairs or maintenance will need to adapt to the increased tax rate. While the depreciation benefit provides some relief, the higher GST incidence could impact profitability, particularly for vehicles requiring significant repairs before resale.

For Individuals: No Change in Personal Sales

On a positive note, individuals buying or selling old vehicles remain unaffected by the revised 18% GST rate. Transactions between individuals will continue to be taxed at 12%, ensuring that personal buyers and sellers retain the affordability advantage.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.