GST rates for old cars: Under the direction of Union Minister for Finance & Corporate Affairs Nirmala Sitharaman, the 55th GST Council took place at Jaisalmer, Rajasthan, on December 21st 2024. In addition to senior officials from the Ministry of Finance & States/UTs, the meeting was attended by the chief ministers of Goa, Haryana, Jammu and Kashmir, Meghalaya, and Odisha; the deputy chief ministers of Arunachal Pradesh, Bihar, Madhya Pradesh, and Telangana; and the union minister of state for finance, Pankaj Chaudhary.
The objectives of the GST Council’s recent decision to decide on a consistent 18% rate was to set up the GST that applies to the sale of all used cars, including electric vehicles.
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According to official sources, only “registered persons” primarily companies that buy and sell used cars are required to pay Goods and Services Tax (GST) on the sale of old and used cars, and only if a profit is made from the transaction.
In simple terms, this means that GST will only be charged if the selling price exceeds the acquisition cost or if the margin is positive. Depreciation-adjusted value will be used as cost for those who claimed depreciation on the vehicle. According to sources, the cost of purchase will equal the real price the seller paid for the car in all other circumstances.
Additionally, if a person sells a used car to another person, GST won’t be charged.
The GST Council said at its meeting last week that all old and used automobiles, including electric vehicles (EVs), will be subject to a single 18% tax rate. Previously, EVs and other vehicles were subject to a 12% charge, while old cars fuelled by petrol, diesel and LPG were subject to an 18% GST. The goal of the latest GST Council resolution was to standardize the GST rates that apply to the sale of all used cars, including electric vehicles.
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The decision caused some portions to be unclear about whether GST would be applied even when the used car’s sale margin was negative and whether sales of used cars between individuals would also be subject to tax.
Where depreciation has been claimed by the registered person (under the Income Tax Act),Only the value that represents the supplier’s margin that is, the difference between the amount paid for the items supply and its depreciated value on the date of supply is subject to GST. According to a source, no GST is due when the margin is negative.
Otherwise, only the amount that constitutes the supplier’s margin that is, the difference between the buy and sale prices is subject to GST. The insider further stated that no taxes is due in cases where the margin is negative.
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GST examples
According to a government source, no GST would be applied if a “registered person” sold a secondhand car to someone for Rs 10 lakh, even though the original purchase price was Rs 20 lakh and depreciation of Rs 8 lakh was recorded. This is because there would be a negative margin of Rs 2 lakh on the sale since the vehicle’s value would be regarded as Rs 12 lakh (after deducting Rs 8 lakh as depreciation from the initial value of Rs 20 lakh).
Even if the selling price is less than the initial purchase price of Rs 20 lakh, 18% GST will be applied to the Rs 3 lakh margin if the used car’s depreciated value is Rs 12 lakh but its selling price is Rs 15 lakh.
The source provided another example, saying: “If a registered person sells a used car to someone for Rs 10 lakh and the registered person paid Rs 12 lakh for the purchase of the car, he is exempt from paying GST because the supplier’s margin is negative in this scenario. GST will be due on the supplier’s margin, or Rs 2 lakh, in situations where the vehicle was purchased for Rs 20 lakh and sold for Rs 22 lakh.”
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