Scope of Supply:
GST applies to automobiles, including cars. This article throws light on the applicability of GST and tax rates on the sale of old and used refurbished cars.
Supply is considered a taxable event under GST. The definition of supply includes all kinds of sale, exchange, transfer, barter, lease, rental, license, and disposal undertaken for the furtherance of business consideration. Thus, the two important elements of supply are:
- Consideration
- Furtherance of business
A transaction is not considered a sale if the above two elements are not satisfied.
Applicability of GST on Sale of Old Cars:
| Usage by Seller | Is the Seller Registered? | Is the Buyer Registered? | Applicability of GST |
|---|---|---|---|
| Business | No | No | No |
| Business | No | Yes | Yes on a reverse charge basis |
| Business | Yes | No | Yes |
| Personal | No | No | No |
| Car Dealer | Yes | No | Yes |
Tax Rate and HSN Code:
The GST rate on cars varies from Nil to 28% depending upon their use and type. Under GST, there is no distinction between new goods and second-hand goods. The table below illustrates the revised GST rates on the sale of old cars:
| Description | HSN Code | GST | Compensation Cess |
|---|---|---|---|
| LPG/CNG vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000mm | 8703 | 18% | 1% |
| Diesel vehicles having engine capacity not greater than 1500cc and length not greater than 4000mm | 8703 | 18% | 3% |
| Engine capacity greater than 1500cc | 8703 | If the seller did not claim ITC: 18% <br> If the seller has claimed ITC: 28% | 20% |
| SUVs (Engine capacity greater than 1500cc) | 8703 | If the seller did not claim ITC: 18% <br> If the seller has claimed ITC: 28% | 22% |
| Electric vehicles (both two and three-wheeled) | 8703 | 5% | Nil |
Valuation of Supply:
- Margin scheme is available for dealers engaged in selling and purchasing old cars.
- GST is applicable only on the differential between the sale price and purchase price of second-hand cars as per the scheme.
- If there is any value addition to the car by way of repair or refurbishment, then the value of such addition shall be summed to the value of goods.
Input Tax Credit Claims:
- If a dealer purchased a used car from another registered dealer, then GST is collected and paid by the selling dealer.
- Section 17(5) disallows ITC on certain motor vehicles, mainly those with seating capacity less than or equal to 13 persons.
FAQs:
Who is liable to pay GST in the sale of used cars by the Government?
- Sale to a registered person: In such a case, the registered taxpayer must pay GST under reverse charge.
- Sale to an unregistered person: In such a case, the respective Government Department shall obtain GST registration and pay tax.
What is the value of supply on which GST is applied?
- Depreciation is availed: The value of supply is the gap between the sale price and the depreciated value of the car as on the date of supply.
- Other cases: It is the difference between the selling price and the purchase price, and if the same is negative, it shall be ignored.
GST on Sale of Used Cars in India:
In India, Goods and Service Tax (GST) was introduced as a successor of Value Added Tax (VAT) for the supply of goods and services. The GST rates on the sale of used cars vary based on the type and usage.
| Car Category | GST Rate |
|---|---|
| Small/Mini Cars | 18% |
| Mid-size | 18% |
| Luxury Cars | 28% |
GST on Sale of Used Car by Individual:
- Individual to Individual: No GST is applicable.
- Individual to Business: GST may apply based on the registration status of the buyer and seller.
- Individual to Car Dealers: GST may apply on a reverse charge basis if the buyer (car dealer) is registered under GST.
Applicability of GST on Sale of Used Car:
GST's applicability on the sale of used cars hinges predominantly on the seller's status—whether they are a registered or unregistered dealer in the GST framework.
- GST on Sale of Second Hand Car by Unregistered Dealer: Exempt from GST.
- GST on Sale of Second Hand Car by Registered Dealer: GST is applicable on the sale of used cars.
Impact of GST on the Second-Hand Car Market:
GST has had a significant impact on the second-hand car market, affecting prices and influencing financial decisions for both buyers and sellers.
Rate of GST on Used Cars:
The evolution of the GST framework for used cars has seen notable amendments. The rates now vary based on the type and engine capacity of the used vehicle.
| Type of Used Car | GST on Used Vehicle | Compensation Cess | Total Applicable Tax |
|---|---|---|---|
| Petrol Car with engine capacity up to 1200cc | 12% | Nil | 12% |
| Petrol Car with engine capacity over 1200cc | 18% | Nil | 18% |
| Diesel Car with engine capacity up to 1500cc | 12% | Nil | 12% |
| Diesel Car with engine capacity over 1500cc | 18% | Nil | 18% |
Conclusion:
Understanding the GST on used cars is crucial for both buyers and sellers as it impacts the sale and purchase of second-hand cars. Changes in GST rates and the removal of compensation cess have made the used car market more favorable. Being aware of how GST works helps in making informed choices and understanding the financial details, ensuring the best deal in the second-hand car market.
