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GST Council’s decision: 18% GST applicable on old cars
Taking an important decision on 21 December 2023, the GST Council made it clear that now GST at the rate of 18% will be levied on the sale of all old vehicles including electric vehicles. Earlier, this rate was applicable only to petrol vehicles with engine capacity of 1200 cc or more and length more than 4000 mm, or to diesel vehicles with engine capacity of 1500 cc or more. Also, this rule was applicable on SUV category vehicles also.
However, this rule will apply only to business transactions. The GST rate of 12% will still be applicable on the sale of old vehicles between individuals. Additionally, 18% GST will be calculated only on the difference between the purchase price and the selling price, including the depreciated value claimed.
What is the real meaning of GST Council’s decision?
1. GST based on depreciation:
If a registered person claims depreciation under Section 32 of the Income Tax Act 1961, GST will be charged on the supplier’s margin. This margin will be determined on the basis of the difference between the sale price and the depreciated value.
2. GST Calculation in General Cases:
Where depreciation is not claimed, GST will be levied on the difference between the purchase price and the selling price. If this margin is negative, then GST will not be applicable.
Understand the new GST rule through example
first instance:
If a person bought an old car for Rs 20 lakh and sold it for Rs 10 lakh, and depreciation of Rs 8 lakh has been claimed on it, then GST will not be charged. The reason is that the difference between the sale price (10 lakh) and the depreciated value (12 lakh) is negative.
Second example:
If the depreciated value of a car is Rs 12 lakh and it is sold for Rs 15 lakh, the difference (Rs 3 lakh) will attract GST at the rate of 18%.
Third example:
If a registered person bought a car for Rs 12 lakh and sold it for Rs 10 lakh, then GST will not be applicable because the margin is negative. Whereas, if the purchase price is Rs 20 lakh and the sale price is Rs 22 lakh, then 18% GST will be applicable on the margin of Rs 2 lakh.
Impact of GST on the sale of old cars
The increase in GST rates can have a direct impact on the $32 billion second-hand car market. According to Vikram Chopra, co-founder and CEO of Cars24, only 10% of people in India own a car. In such a situation, decisions like GST increase can slow down the growth of this segment.
Many online platforms and dealers involved in the sale of used vehicles believe that this decision may bring a slowdown in the second-hand car market, which will increase challenges for both buyers and sellers.
