Selling used cars by businesses can be complex under GST regulations. The confusion arises particularly around Input Tax Credit (ITC), depreciation, and output tax. This guide clarifies these aspects based on Notification No- 8/2018 (Central Tax Rate) dated January 25, 2018. These rules apply to all sales from January 25, 2018, for GST-registered entities including companies, partnerships, LLPs, societies, trusts, and sole proprietorships, but not for those claiming ITC, such as taxi operators and transport services.
Understanding GST on Sale of Used Cars
Key Scenarios:
- Vehicle Purchased, Input Not Availed, Depreciation Claimed under Income Tax Act (Section 32)
- Vehicle Purchased, Input Not Availed, Depreciation Not Claimed
Case A: Vehicle Purchased, Input Not Availed, Depreciation Claimed
Example: XYZ Ltd. bought a car for ₹9,00,000 on April 1, 2018. No ITC was claimed, and depreciation was claimed as per the Income Tax Act. They sold the car on April 1, 2023, for ₹3,50,000.
GST Rate:
- 18% GST applies.
Taxable Value:
- For GST-registered sellers: Sale price (₹3,50,000) minus depreciated value (₹1,20,000) = ₹2,30,000. If negative, it is considered zero.
- For GST non-registered sellers: Sale price minus purchase value (nil if negative).
Common Myths:
- ITC Reversal: No need to reverse ITC as it wasn’t claimed initially.
- Rules Applicability: Rules about capital goods don’t apply as no ITC was taken.
- Tax Rate Similar to New Car: Notification No- 8/2018 overrides general tax rates for new cars.
Case B: Vehicle Purchased, Input Not Availed, Depreciation Not Claimed
Example: ABC Pvt. Ltd. bought a car for ₹7,00,000 on February 1, 2019. No ITC was claimed, and no depreciation was claimed. They sold it on February 1, 2023, for ₹4,50,000.
GST Rate:
- 12% GST applies.
Taxable Value:
- For all sellers: Sale price (₹4,50,000) minus purchase value (₹7,00,000) = nil if negative.
Common Myths:
- ITC Reversal: No need to reverse ITC as it wasn’t claimed initially.
- Rules Applicability: Rules about capital goods don’t apply as no ITC was taken.
- Tax Rate Similar to New Car: Notification No- 8/2018 overrides general tax rates for new cars.
Practical Issues and Caution Points
Presumptive Taxation:
- Example: MNO Enterprises operates under presumptive taxation (Section 44AD). They are unsure if they fall under Case A or Case B when selling a car.
- Solution: Under presumptive taxation, all allowed expenses are presumed claimed, meaning they fall under Case A.
Depreciated Value Calculation:
- Example: PQR Ltd. needs to compute the depreciated value of a car bought for ₹11,00,000. They calculate the depreciated value until the latest financial year.
- Steps:
- Calculate the value from the date of use to the latest financial year.
- Compare this with the block value of assets. Use the lower value.
Key Points at a Glance
| Scenario | GST Rate | Taxable Value | ITC Reversal | Applicable Rules |
|---|---|---|---|---|
| Vehicle Purchased, Input Not Availed, Depreciation Claimed | 18% | Sale price minus depreciated value | Not required | Notification No- 8/2018 |
| Vehicle Purchased, Input Not Availed, Depreciation Not Claimed | 12% | Sale price minus purchase value | Not required | Notification No- 8/2018 |
Conclusion
This guide clarifies GST rules on selling used company cars, addressing common myths and providing practical advice. Understanding different cases and computing taxable values helps businesses comply with GST regulations confidently.
Example Ruling
In the Gujarat Authority for Advance Ruling (AAR) case of M/s Dishman Carbogen Amcis Private Limited, the ruling clarified that for used cars, the GST is charged on the margin between the sale price and the depreciated value under the Income Tax Act. This ruling follows Notification No- 8/2018 and applies an 18% GST rate.
