GST margin scheme: People who deal in the purchase and sale of used goods can use the margin scheme. Only the margin between the purchase and sale prices of the used goods is subject to GST under this scheme.
There is no GST imposed when the dealer in used goods buys such goods from an unregistered person. When such a product is sold, GST is due on the difference between the sale price and the original cost.
Such a scheme is only applicable when the goods have undergone no change or only minor processing. Such a scheme is not applicable if the nature of the goods changes. The entire amount is subject to GST if there is a change in the nature of the item. For instance, if a jeweler buys a gold ring and then melts it to make a chain, tax is due on the full amount, not just the margin.
For instance, a dealer might buy two cars and profit by Rs. 60,000 on one and lose Rs. 30,000 on the other. In this scenario, the dealer is only required to pay tax on Rs. 60,000.
If any additional value is added through maintenance, restoration, reconditioning, etc., it must be included in the margin and added to the value of the goods.
The GST rates to be applied to used goods would be the same as if they were new goods since there is no distinction of GST rate between new and used goods under the GST Law. For instance, if a new car is subject to a 28% GST rate, the same rate applies to the sale of a used car.
Conditions to avail margin scheme
- Supplier of goods must be a second-hand goods dealer.
- Opting for a margin scheme means the taxpayer cannot avail input tax credit.
- If the goods undergo any further processing, the nature of the goods shall not change.
- A transaction must be a taxable supply.
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GST Margin Scheme applicable to all second-hand goods
No, the GST Margin Scheme is applicable only to specific second-hand goods as listed by the government. As per the GST law, the Margin Scheme can be availed for the supply of second-hand goods, namely:
1. Used personal or household effects,
2. Used goods, such as vehicles, books, or furniture, which are held for personal or household use, and
3. Old and used articles of precious metals.
It is important to note that the Margin Scheme is not applicable to all types of second-hand goods, and the list of eligible goods is subject to change as per government notifications.
Read Also: GST on sale of Real Estate and Rates
Dealer Acting as an Agent
A second-hand dealer is not covered by the scheme if they are not buying and selling goods themselves but are instead acting as a seller’s agent to find a buyer. On the commission that the dealer receives from the seller or the buyer, GST at a rate of 18% is applicable.
Purchased from a registered dealer
If a dealer buys used goods from another registered dealer, the selling dealer is responsible for collecting GST. As per standard ITC rules, the purchasing dealer’s GST payment is also eligible for him to claim as an input tax credit.
Additionally, the selling dealer must pay GST on the amount of the margin rather than the full value.
Calculation of Margin
- In case a motor vehicle is sold by a registered person who has claimed depreciation u/s 32 of the Income Tax Act:
The margin for the purpose of GST computation shall be = Selling price of Motor Vehicle- Depreciated value of the motor vehicle on the date of sale as per Income Tax act; If the margin is negative, it shall be ignored.
- In any other case:
Margin shall be = Selling Price – Purchase Price (as discussed earlier in this article); and where such margin is negative, it shall be ignored.
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