GST On Sale Of Used Cars: Finance Ministry’s Clarification

The Finance Ministry has issued a clarification regarding the Goods and Services Tax (GST) applicable on the sale of old and used vehicles, including electric vehicles (EVs). Addressing concerns raised following the 55th GST Council meeting, the Ministry stated that the Council has recommended a unified GST rate of 18% on all old and used vehicles, streamlining the previous structure that had varying rates. The Ministry emphasised that no new tax has been imposed on these transactions.

GST liability applies only to registered entities, such as businesses involved in the trade of used vehicles. Transactions between individuals selling old cars to one another remain exempt from GST. Furthermore, the Ministry clarified the tax base for GST in cases where it is applicable.

For registered persons claiming depreciation under Section 32 of the Income Tax Act, GST is calculated on the margin, defined as the difference between the selling price and the depreciated value of the vehicle. If this margin is negative, no GST is payable. Similarly, for transactions not involving depreciation claims, GST is levied only on the profit margin, calculated as the difference between the purchase price and the selling price, with no liability arising if the margin is negative.

Illustrations provided by the Ministry demonstrate these scenarios. For instance, if a registered business sells a vehicle for ₹10 lakh with a depreciated value of ₹12 lakh, no GST is applicable due to a negative margin. Conversely, if the selling price exceeds the depreciated or purchase value, GST is payable on the positive margin at 18%.