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How will sale of used cars will be taxed under new GST rules? A simple guide
The GST Council has recommended an increased 18% tax rate on used car sales of electric vehicles (EVs), along with specified petrol and diesel cars
The GST Council has recommended an increased 18% tax rate on the margin figure of used car sales which includes all electric vehicles (EVs), along with specified petrol and diesel cars.
Full details of new used car GST policy
The 18% GST slab applies to all electric vehicles (EVs), petrol cars with an engine capacity of 1,200 cc or more or of length of 4000 mm or more, diesel cars with engine capacity of 1,500 cc or more or with a length of 4000 mm or more, and SUVs.
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This means that cars with a lower engine capacity, as mentioned above, and also a lower length will be taxed only at 12% GST, which is the current rate.
If the transaction is between individual sellers wherein the seller is not GST registered, then the tax will not apply. This applies to all types of cars.
The GST Council has also not specified any new reverse charge liability, The Economic Times reported.
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While most businesses cannot claim input tax credit (ITC) on the purchase of a car even if it was bought in the name of the GST registered business, car dealers with showrooms along with transporters can claim ITC on such purchases.
However, the report quoted Chartered Accountant Bimal Jain, founder of A2Z Taxcorp LLP, as saying that businesses eligible for claiming input tax credit on car purchases have to pay GST on the sale value and not the margin.
Only those who can't claim ITC have to pay GST on the margin, he added.
No GST has to be paid if there is a loss on sale of the vehicle.
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However, used car dealers can take advantage of the ‘margin scheme' if they do not avail ITC, wherein they are allowed to only pay GST on the difference between the sale price and the purchase price or the depreciated value of the car (if deprecation was availed), according to the report.
Also used car businesses cannot set off losses on other positive margins when the selling price is lower than the purchase price.
