The GST Council announced on December 21 that an 18% Goods and Services Tax (GST) will now apply to the sale of all old vehicles, including electric cars.
Previously, this rate was limited to petrol vehicles with engines of 1200 cc or more and a length of 4000 mm or more, diesel vehicles with engines of 500 cc or more a
nd a length of 4000 mm, and SUVs (Sports Utility Vehicles).
However, this 18% GST is applicable only when businesses buy or sell used cars. Transactions between individuals will continue to be taxed at the earlier rate of 12%.
The tax calculation is based on the difference between the purchase price and the selling price, taking into account any depreciation claimed.
How is GST Calculated on Used Cars?
When Depreciation is Claimed
1) GST is charged on the margin, which is the difference between the selling price and the depreciated value of the vehicle.
Example 1: A car bought for ₹20 lakh is sold for ₹10 lakh, and depreciation of ₹8 lakh is claimed. Since the margin (₹10 lakh – ₹12 lakh) is negative, no GST is charged.
Example 2: A car with a depreciated value of ₹12 lakh is sold for ₹15 lakh. Here, GST at 18% is applied to the margin of ₹3 lakh.
When Depreciation is Not Claimed
1) GST is charged on the difference between the purchase price and the selling price.
Example 1: If a car purchased for ₹12 lakh is sold for ₹10 lakh, no GST is charged because the margin is negative.
Example 2: If a car bought for ₹20 lakh is sold for ₹22 lakh, GST at 18% is applied to the margin of ₹2 lakh.
In cases where the margin is negative, no GST is charged.
Potential Impact on the Used Car Market
This tax increase could significantly impact India’s $32 billion used car market. Vikram Chopra, co-founder
and CEO of Cars24, expressed concerns that the higher tax burden may slow the market’s growth.
With car ownership in India already below 10%, the increased GST might discourage both businesses and individuals from trading in used vehicles.
