GST applicable on used car sales only if sale margin is positive; no tax on individual-to-individual sales

Also, GST will not be applicable if an individual sells a used car to another individual.

In its meeting last week, the GST Council announced a single tax rate on sale of all old and used vehicles, including electric vehicles (EVs) at 18 per cent. Earlier, sale of used vehicles powered by petrol, diesel, and LPG was subject to 18 per cent GST, while EVs and other vehicles attracted 12 per cent levy. The recent decision by the GST Council was aimed at harmonising GST rates applicable on sale of all used vehicles, including EVs.

The decision had led to confusion in certain sections on whether GST would be levied even in instances where the margin on sale of the used vehicle is negative, and whether individual-to-individual used car sales would also be taxed.

“Where the registered person has claimed depreciation (under the Income Tax Act)…GST is payable only on the value representing the margin of the supplier, that is the difference between consideration received for the supply of such goods and the depreciated value of such goods on the date of supply. Where such margin is negative, no GST is payable,” said a source.

“In any other case, GST is payable only on the value that represents the margin of the supplier, that is the difference between selling price and the purchase price. Where such margin is negative, no GST is payable,” the source added.

GST scenarios

For instance, if a “registered person” sells a used vehicle to anyone for Rs 10 lakh, where the original purchase price was Rs 20 lakh and depreciation of Rs 8 lakh was claimed, then no GST would be levied, a government source said. This is because the value of the vehicle will be considered as Rs 12 lakh (after deducting Rs 8 lakh as depreciation from the original value of Rs 20 lakh), which would result in a negative margin of Rs 2 lakh on the sale.

However, if the depreciated value of the used vehicle is Rs 12 lakh, but the selling price is Rs 15 lakhs, 18 per cent GST will be applicable on the margin of Rs 3 lakh, despite the selling price being lower than the original purchase price of Rs 20 lakh.

Giving another example, the source said: “Suppose a registered person is selling an old and used vehicle to any person at Rs 10 lakh, where the purchase price of the vehicle by the registered person was Rs 12 lakh, then he is not required to pay any GST as the margin of the supplier is negative in this case. In cases where the purchase price of the vehicle was Rs 20 lakh and the selling price is Rs 22 lakh, GST will be payable on the margin of supplier, that is, Rs 2 lakh.”