Used Cars: 18% GST - Will It Affect Individual Buyers, Sellers? Explained

Registered sellers must pay GST on the sale of old and used vehicles only if there is a positive margin, meaning the selling price exceeds the depreciation-adjusted cost of the vehicle. If the margin is negative, no GST is applicable.

The GST Council has set a uniform 18 per cent  GST rate on the sale of all old and used vehicles, including electric vehicles (EVs), replacing the earlier varied rates.

GST Applicability Scenarios

Individual-to-Individual Sales: No GST applies.
Registered Sellers: GST is payable only on the margin (selling price minus depreciated value or purchase price).
Examples:

Negative Margin:

Purchase Price:  Rs 20 lakh
Depreciated Value:  Rs 12 lakh
Selling Price:  Rs 10 lakh
No GST is payable as the margin is negative ( Rs 10 lakh -  Rs 12 lakh = - Rs 2 lakh).

Positive Margin:

Depreciated Value:  Rs 12 lakh
Selling Price:  Rs 15 lakh
GST is payable on the margin of  Rs 3 lakh at 18 per cent .

Purchase Price Scenario:

Purchase Price:  Rs 20 lakh
Selling Price:  Rs 22 lakh
GST is payable on the margin of  Rs 2 lakh at 18 per cent .

Impact on Electric Vehicles and Small Cars

The GST rate on used EVs and small fossil-fuel cars has increased from 12 per cent  to 18 per cent , aligning with larger cars and SUVs. This adjustment benefits second-hand EV buyers as GST will now apply only to margins, not the entire sale value, reducing costs where margins are below 27.78 per cent  of the purchase price.
For small fossil-fuel cars, the cost increase is minimal, ranging from 0.6 per cent to 1.5 per cent, depending on the margin.

Industry Insights

Government Vision: The move aligns with efforts to curb pollution and regulate the growing second-hand car market.
Compliance Challenges: Dealers must maintain detailed transaction records to meet the revised GST requirements.
Consumer Awareness: Buyers should be informed of the net impact on resale pricing.

Expert Opinions

Positive for EVs: Saurabh Agarwal of EY notes that this change supports second-hand EV sales while marginally impacting small car prices.
Challenges for EV Adoption: Rajat Mohan of AMRG & Associates highlights that the GST hike could deter cost-sensitive buyers in the secondary EV market but emphasizes the need for businesses to adapt.

This change is expected to enhance government revenue while ensuring a balanced impact on the resale vehicle market, particularly benefiting environmentally friendly EVs.