18 Per Cent GST On Old Used Cars Applicable Only When Sale Price Exceeds Depreciation Value: Report

A user will need to pay GST on the sale of old and used vehicles only if the seller gets a margin from the deal. However, if they sell the car to another person, no GST will be levied

The report noted that if the individual claims depreciation under Section 32 of the Income Tax Act 1961, the GST would be levied only on the value representing the supplier’s margin.

Source : Cleartax

The GST Council last week announced that a single rate of 18 per cent GST will be applicable on sale of all old and used vehicles including EVs. Earlier, the Goods and Services Tax (GST) rate used to be different for these categories.

However, there has been now a lot of confusion regarding how this same tax will be levied. Citing sources, PTI reported that a registered user will need to pay GST on the sale of old and used vehicles only if the seller gets a margin from the deal, i.e., the selling price is higher than the depreciation adjusted cost price of the vehicle.

However, if an individual sells old and used car to another person, the GST would not be applicable on the sale. The sources further cleared that if the individual claims depreciation under Section 32 of the Income Tax Act 1961, the GST would be levied only on the value representing the supplier’s margin. Therefore, the tax would be applicable on the difference between consideration received for supplying the goods and depreciated value of the goods on the date of supply. If this margin is negative, no GST shall be imposed on the individual.

Saurabh Agarwal, Tax Partner, EY, argued that this move is beneficial for lowering down the cost of second hand EVs. He noted, “The GST Council has recommended increasing the GST rate on old and used EVs and small fossil fuel cars from 12 per cent to 18 per cent, aligning it with the rate for larger cars and SUVs. It's important to note that GST on second hand vehicles will be applied only on margins and not on sale value of vehicles (sale value less income tax depreciated cost of vehicle or purchase price, as the case may be). Prior to the proposed amendment, GST on second hand EVs was applicable on the complete sale value of the vehicle.  Therefore, the proposed change should not be looked as a deterrent for second hand EVs. This should in turn be a welcome step as it would likely bring down the cost for second hand EVs (till the time margins earned are less than 27.78 per cent of the purchase price).  At best, it will increase the cost of second hand small fossil fuel cars by 0.6-1.5 per cent  (assuming margins would range for 10-25 per cent of purchase price).”