The GST Council announced on December 21 that an 18% GST will now be applied to the sale of all old vehicles, including electric ones.
Earlier, this rate was only applicable to petrol vehicles with engines of 1200 cc or more and length 4000 mm or more, diesel vehicles with engines of 500 cc or more and length 4000 mm, and SUVs (Sports Utility Vehicles).
However, this 18% GST applies only when businesses buy or sell used cars, not to transactions between individuals.
For individual transactions, the tax rate remains at 12%. The GST will be calculated on the difference between the purchase price and the selling price, factoring in any depreciation claimed.
How Will GST Be Calculated?
If the seller has claimed depreciation under Section 32 of the Income Tax Act (1961), GST will be levied on the margin, which is the difference between the selling price
and the depreciated value. In other cases, GST will be charged on the difference between the selling price and the purchase price.
Negative Margin: No GST will be charged if the margin is negative.
Example 1: If a car bought for ₹20 lakh is sold for ₹10 lakh and depreciation of ₹8 lakh is claimed, no GST will be charged since the margin (₹10 lakh – ₹12 lakh) is negative.
Example 2: If the depreciated value of the car is ₹12 lakh and it is sold for ₹15 lakh, GST at 18% will be applied to the margin of ₹3 lakh.
For cars sold without claiming depreciation:
1) If a car purchased for ₹12 lakh is sold for ₹10 lakh, no GST is charged because the margin is negative.
2) If a car bought for ₹20 lakh is sold for ₹22 lakh, GST at 18% will apply to the margin of ₹2 lakh.
Impact on the Used Car Market
The increase in GST on old cars could affect the $32 billion used car market. Vikram Chopra, co-founder
and CEO of Cars24, warns that this decision might slow the market’s growth, especially since car ownership in India is already below 10%. The higher tax burden may deter both businesses and individuals from trading in used cars.
