GST on Used Cars: Clearing the Myths on Social Media
If you are selling your personal car to another individual, you do not have to worry about paying GST on the transaction
After the 55th Goods and Services Tax ( GST ) Council meeting, a lot of mist appeared to many people which was frequently mentioned in the social media regarding the 18% GST applied to all old and used vehicles, including electric vehicles (EVs), sold by registered businesses. Many were confused on whether GST will be charged when the car is being sold to two individuals. This needs...
After the 55th Goods and Services Tax ( GST ) Council meeting, a lot of mist appeared to many people which was frequently mentioned in the social media regarding the 18% GST applied to all old and used vehicles, including electric vehicles (EVs), sold by registered businesses.
Many were confused on whether GST will be charged when the car is being sold to two individuals. This needs clear clarification that the sale of used cars between private individuals definitely does not attract GST as they are not engaged in the business of selling vehicles and therefore do not fall within the purview of GST.
GST on Used Cars Sale between Private IndividualsÂ
A key point of confusion among the public is whether GST applies to transactions involving the sale or purchase of used cars by private individuals. It is important to note that transactions involving the sale and purchase of used vehicles by individuals or private persons are exempted from GST. This means that if you are selling your personal car to another individual, you do not have to worry about paying GST on the transaction.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
The sense behind this exemption is that private individuals are not engaged in the business of selling vehicles and therefore do not fall within the purview of GST. GST is a tax on the supply of goods and services in the course of business, and private sales do not qualify as business transactions.
GST Applicability for Registered Dealers
When it comes to registered car dealers or businesses involved in the buying and selling of used cars, GST does come into play. However, GST is not levied on the full sale price of the vehicle; rather, it is applicable only on the margin of the supplier. The margin is calculated as the difference between the purchase price and the selling price of the vehicle.
For instance, if a car dealer buys a used car for ₹10,00,000 and sells it for ₹12,00,000, the GST is levied on the margin of ₹2,00,000. Assuming an 18% GST rate, the dealer would have to pay ₹36,000 as GST.
If there is no margin, then there is no requirement to pay GST.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
Calculation Example
To better understand how GST on used cars is calculated, let us consider a few scenarios:
1.Scenario 1: Profit Margin Sale
- Purchase Price: ₹10,00,000
- Selling Price: ₹12,00,000
- Margin: ₹2,00,000
- GST @ 18%: ₹36,000
In this case, the dealer pays GST only on the profit margin of ₹2,00,000, not on the total selling price of ₹12,00,000.
2. Scenario 2: Break-Even Sale
- Purchase Price: ₹10,00,000
- Selling Price: ₹10,00,000
- Margin: ₹0 (No profit, no loss)
- GST: ₹0
Since there is no profit margin in this transaction, no GST is payable.
3. Scenario 3: Loss Sale
- Purchase Price: ₹10,00,000
- Selling Price: ₹9,50,000
- Margin: ₹-50,000 (Loss)
- GST: ₹0
- In the event of a loss, GST is not applicable because the margin is negative
The reason for taxing only the margin in the sale of used cars lies in avoiding double taxation. When a vehicle is sold as a used car, it has already been subjected to taxation (such as GST or VAT) at the time of its initial purchase.
Taxing the full sale price again would result in cascading taxation, which the GST regime intends to eliminate. By taxing only the margin, the government ensures that GST is levied only on the value addition made by the dealer.
Implications for Buyers and Sellers
For individuals buying or selling used cars, the GST exemption means there’s no need to worry about paying tax or handling complex tax compliance. However, if you’re buying from a registered dealer, be aware that GST might be included in the price, based on the dealer’s profit margin.
Complete Supreme Court Judgment on GST from 2017 to 2024 with Free E-Book Access, Click here
For dealers, it’s important to understand and follow GST rules carefully. Properly calculating the profit margin and maintaining proper records is essential to stay compliant and avoid penalties.
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