Leave Encashment Exemption up to ₹25 Lakh for PSU Bank Retirees: CBDT Notification 31/2023, ITAT Gyanendra Panwar and Tax Position under the Income-tax Act, 2025

 By CA Surekha Ahuja

Retired from a PSU Bank after 1 April 2023? Your leave encashment may be exempt up to ₹25 lakh — not ₹3 lakh

One of the most common tax mistakes in retirement taxation today is the continued application of the old ₹3 lakh leave encashment exemption limit to retired PSU bank employees.

The law has changed.

But tax processing systems, payroll assumptions, and even tax return filings often continue under the old framework.

The result:

wrong tax deductions, incorrect CPC adjustments, unnecessary appeals, and blocked refunds.

The position has now become significantly clearer after:

• CBDT Notification No. 31/2023, which enhanced the exemption ceiling from ₹3 lakh to ₹25 lakh for non-government employees; and
• the recent ruling in Gyanendra Panwar v. Assistant Director of Income-tax, CPC, ITO, where the Tribunal recognised the applicability of the enhanced limit to a retired PSU bank employee.

For retired PSU bank employees, tax professionals, payroll teams and litigators, this ruling has practical and immediate importance.

This article analyses the legal framework, judicial reasoning, compliance implications, and continuity under the Income-tax Act, 2025.

The legal framework: Section 10(10AA) of the Income-tax Act, 1961

Leave encashment received at retirement is governed by Section 10(10AA).

The provision creates two legally distinct categories.

Category 1: Central Government and State Government employees

Under Section 10(10AA)(i):

Leave encashment received at retirement by Central or State Government employees is fully exempt.

No monetary ceiling applies. This exemption is absolute.

Category 2: All other employees

Under Section 10(10AA)(ii):

Employees other than Central and State Government employees are entitled to exemption subject to prescribed limits.

This category includes:

• PSU bank employees
• public sector undertaking employees
• statutory body employees
• autonomous body employees
• private sector employees

This distinction is critical. Government ownership of the employer does not convert the employee into a Government employee for this exemption. That is the core legal principle.

How leave encashment exemption is calculated for PSU bank employees

For non-government employees, exemption is restricted to the least of the following:

Particulars	Limit
Actual leave encashment received	Actual receipt
Leave standing to employee’s credit	As per service rules
Average salary of preceding 10 months	Statutory salary basis
Government notified ceiling	₹25 lakh

This is where CBDT Notification 31/2023 changed the practical tax position.

CBDT Notification No. 31/2023: The ₹25 lakh enhancement

The Central Board of Direct Taxes, through Notification No. 31/2023 dated 24 May 2023, enhanced the exemption ceiling from ₹3 lakh to ₹25 lakh for non-government salaried employees.

The notification applies with effect from 1 April 2023.

This means: for retirements on or after 1 April 2023, the applicable statutory ceiling under Section 10(10AA)(ii) is ₹25 lakh.  Not ₹3 lakh. This enhancement fundamentally changes retirement taxation for PSU employees.

Why the dispute arose despite the notification

In practice, many returns were processed incorrectly.

Common reasons:

• CPC systems applying historical logic
• payroll teams not updating exemption treatment
• Form 16 reporting errors
• misunderstanding of PSU employee classification

This created unnecessary tax demands. The ITAT decision in Gyanendra Panwar addresses this exact issue.

The ITAT ruling in Gyanendra Panwar: What exactly was decided

The taxpayer, a retired employee of Bank of Baroda, received approximately ₹9.27 lakh as leave encashment after retirement.

He claimed exemption under Section 10(10AA).

CPC restricted the exemption to ₹3 lakh while processing the return under Section 143(1).

The matter reached the Tribunal.

The Tribunal clarified the law decisively.

---

Key legal findings of the Tribunal

1. PSU bank employees are not Government employees

This is an established legal position.

A PSU bank may be government-controlled, but it remains a separate legal employer.

Therefore:

Section 10(10AA)(i) does not apply. Unlimited exemption is unavailable.

2. PSU bank employees fall under “other employees”

This is where the benefit lies.

They are governed by Section 10(10AA)(ii).

And Section 10(10AA)(ii) now carries the ₹25 lakh ceiling.

3. The revised ₹25 lakh ceiling applies from 1 April 2023

This is the decisive legal ratio.

Where retirement and leave encashment arise after 1 April 2023:

the old ₹3 lakh ceiling cannot be imposed.

4. Actual amount received within statutory limits is fully exempt

Since the amount in dispute was ₹9.27 lakh, and it fell within statutory computation limits, the entire amount qualified for exemption.

This is the practical takeaway.

Practical tax illustration

Suppose a retired PSU bank employee receives:

Particulars	Amount
Leave encashment received	₹12,80,000
Average 10-month salary	₹14,20,000
Leave standing to credit	₹13,50,000
CBDT notified limit	₹25,00,000

Exemption will be the least.

Result:

₹12,80,000 exempt, Taxable amount Nil

Under the old ₹3 lakh limit, ₹9.80 lakh would have wrongly become taxable.

That difference is substantial.

Position under the Income-tax Act, 2025

The new Income-tax Act, 2025 has reorganised exemption provisions.

However, the substantive architecture remains intact.

The new law continues:

• separate treatment for Government employees
• limited exemption for non-government employees
• notified monetary ceiling framework
• salary-linked exemption formula

Therefore, the tax principle remains unchanged.

The ₹25 lakh ceiling continues. This ensures legal continuity.

What if retirement happened before 1 April 2023?

This requires careful litigation strategy.

The notification is effective prospectively.

But depending on facts, remedies may still be explored.

1. Rectification under Section 154

Possible where there is an apparent legal error.

2. Revised return

Possible if time limit remains open.

3. Appeal against Section 143(1) adjustment

Where CPC has wrongly restricted exemption.

4. Condonation under Section 119(2)(b)

Useful where refund claims were omitted. Each case must be fact-tested.

Action points for retired PSU bank employees

Before filing or revising return:

✔ verify leave encashment amount
✔ verify exemption disclosure
✔ review Form 16
✔ review CPC intimation
✔ verify tax deducted
✔ initiate correction where required

Small mistakes can create large tax leakage.

Action points for PSU banks and payroll teams

Payroll teams should immediately:

• update leave encashment exemption logic
• align retirement settlement tax treatment
• correct Form 16 disclosures
• prevent excess TDS deduction
• guide retiring employees properly

Payroll mistakes become litigation problems.

Professional significance of the ITAT ruling

The ruling in Gyanendra Panwar v. Assistant Director of Income-tax, CPC, ITO is likely to become an important salary-tax reference point.

Its practical use extends to:

• rectification petitions
• appellate matters
• refund claims
• retirement advisory
• payroll tax review

The decision closes an important practical gap between statutory amendment and tax processing.

Conclusion

The legal position is now substantially clear.

A PSU bank employee is not a Government employee for leave encashment exemption purposes.

But after CBDT Notification No. 31/2023, that does not mean exemption remains restricted to ₹3 lakh.

For retirement on or after 1 April 2023:

the exemption ceiling is ₹25 lakh under Section 10(10AA), subject to statutory computation.

The ITAT in Gyanendra Panwar has reinforced that this enhanced ceiling must be respected.

For taxpayers, this means relief.

For professionals, this means a stronger litigation and advisory position.

For payroll teams, this means immediate compliance correction.

Tax law changes on paper.
Tax relief becomes real only when correctly applied.

GST for Charitable Trusts & Spiritual Organisations: Exemption, Taxability, Donations, RCM and Compliance Framework (2026)

 Spiritual Retreats | Donations | Value Education Programmes | Reverse Charge Mechanism | HSN/SAC Classification | GST Correction Framework

BY CA Surekha Ahuja

Based on the CGST Act, 2017, Central Board of Indirect Taxes and Customs Notification No. 12/2017-Central Tax (Rate), Notification No. 13/2017-Central Tax (Rate) and Circular No. 66/40/2018-GST

Complete GST guide for charitable trusts and spiritual organisations covering GST exemption, taxability of spiritual retreats, donations vs consideration, value education programmes, reverse charge mechanism (RCM), HSN/SAC codes and practical GST compliance framework.

GST for Charitable Trusts: Exemption is Activity-Based, Not Institution-Based

One of the most common misconceptions in the charitable sector is this:

If the institution is charitable, all receipts are automatically exempt from GST.

That is not the legal position.

GST exemption is not granted merely because an institution is registered under Section 12AA or Section 12AB of the Income-tax Act.

GST exemption is granted only when a specific activity qualifies as an exempt activity under GST law.

This distinction is fundamental.

A charitable institution may carry out:

• exempt activities,
• taxable activities,
• non-GST activities, and
• inward supplies liable under reverse charge.

For example:

A spiritual retreat may be exempt.
A value education programme may be taxable.
A voluntary donation may remain outside GST.
A compulsory payment may be consideration.
A legal fee paid may attract reverse charge.

Therefore, the first GST question is not:

Is the institution charitable?

The correct question is:

What is the true legal character of the transaction?

That determines taxability.

The Four-Step GST Test for Charitable Organisations

Before classifying any receipt or payment, every trust, NGO and spiritual institution should apply this four-step legal framework:

Core GST Decision Matrix

Test	Statutory Basis	If Yes	If No
Is there a supply?	Section 7, CGST Act	Proceed further	Outside GST
Is there consideration?	Section 2(31), CGST Act	Examine taxability	Possible donation
Does exemption apply?	Notification No. 12/2017-CT (Rate)	Exempt supply	Taxable supply
Is inward supply notified under RCM?	Section 9(3) + Notification No. 13/2017	Reverse charge applies	Forward charge

The guiding principle remains:

Substance prevails over nomenclature.

Calling a receipt a donation does not make it a donation.

Its legal nature determines its treatment.

GST Classification Matrix for Charitable Trusts and Spiritual Organisations

The following matrix serves as a practical GST compliance tool:

Activity	SAC / HSN	GST Position	Charge Mechanism	Remarks
Spiritual retreats	SAC 9995	Exempt	Not applicable	If qualifying as charitable/spiritual activity
Yoga and meditation camps	SAC 9995	Exempt	Not applicable	Subject to exemption conditions
Residential spiritual retreats	SAC 9995	Exempt	Not applicable	Composite supply principles may apply
Value education programmes (paid)	SAC 9992	Taxable @18%	Forward charge	Training/coaching services
Value education programmes (free)	—	Outside GST	Not applicable	No consideration
Hall renting	SAC 9972	Taxable @18%	Forward charge	Subject to factual review
Sale of printed books	HSN 4901	Generally exempt	Forward charge	Product-specific exemption
Legal services received	SAC 9982	Taxable	Reverse charge	Advocate services
Security services received	SAC 9985	May attract RCM	Reverse charge (conditional)	Subject to notification conditions
GTA services received	SAC 9965	May attract RCM	Reverse charge (conditional)	Subject to statutory option

This activity matrix should form part of every trust’s internal GST compliance policy.

GST on Spiritual Retreats and Religious Programmes

Spiritual organisations frequently conduct:

• spiritual retreats
• meditation camps
• Vedanta study programmes
• yoga workshops
• scriptural sessions

Where such programmes are conducted by a Section 12AA/12AB registered entity for advancement of religion, spirituality or yoga, GST exemption may be available under Notification No. 12/2017.

The exemption may continue even where:

• participation fees are charged,
• accommodation is provided, and
• meals are included,

provided the principal supply remains spiritual advancement.

Charging a fee does not destroy exemption.

But the classification of that fee remains important.

Correct Receipt Classification for Spiritual Retreats

This is one of the most critical compliance areas.

Correct Compliance Matrix

Receipt Type	Real Legal Character	GST Position	Correct Documentation
Fixed participation fee	Consideration for exempt spiritual activity	Exempt supply (if exemption conditions are satisfied)	Participation Fee Receipt
Compulsory amount termed as donation	Consideration in substance	Exempt supply (if exemption conditions are satisfied)	Reclassify as Participation Fee
Voluntary independent contribution	Pure donation	Outside GST	Donation Receipt

The legal principle is clear:

If payment is mandatory for participation, it is consideration.

It does not become a donation merely because the receipt says so.

However, where the underlying spiritual activity qualifies for exemption, such consideration remains exempt.

A valid donation must always remain:

• voluntary,
• unconditional, and
• independent of service.

GST on Value Education Programmes Conducted by Charitable Institutions

Many charitable organisations conduct programmes in schools covering:

• ethics
• leadership
• personality development
• value systems
• character-building

A common assumption is that these are exempt educational services.

That assumption is often incorrect.

GST exemption for educational services is limited and specific.

Unless falling within recognised exempt educational categories, such independent programmes generally qualify as training or coaching services.

Accordingly, they are generally taxable.

Taxability Matrix for Value Education Programmes

Scenario	GST Position	SAC	Legal Position
Conducted free	Outside GST	Not applicable	No consideration
Fixed fee charged	Taxable @18%	SAC 9992	Coaching/training supply
Amount labelled as donation but linked to programme	Taxable @18%	SAC 9992	Nomenclature irrelevant
Voluntary contribution independent of service	Outside GST	Not applicable	Donation possible

The decisive factor is linkage.

If payment is linked to service, GST implications arise.

Donation vs Consideration: The Most Important GST Test

This distinction decides taxability in many charitable cases.

Legal Distinction Matrix

Test	Donation	Consideration
Voluntary payment	Yes	No
Mandatory payment	No	Yes
Service-linked payment	No	Yes
Reciprocal obligation	No	Yes
Participation conditional upon payment	No	Yes

A donation must remain independent.

Once it becomes conditional, its legal character changes.

Reverse Charge Mechanism (RCM) for Charitable Trusts

GST exposure in charitable organisations is not restricted to receipts.

It may also arise on inward supplies.

This is the reverse charge mechanism.

It is frequently ignored.

Reverse Charge Compliance Matrix

Service Received	SAC	GST Liability	Mechanism
Legal services by advocate	9982	Applicable	Reverse charge
Security services	9985	Subject to notification conditions	Reverse charge
GTA services	9965	Subject to statutory option	Reverse charge

Important:

Exempt outward supplies do not eliminate reverse charge liability.

Registration implications should be separately evaluated wherever reverse charge obligations arise.

Major GST Risk Areas for Charitable Organisations

Most GST disputes in the charitable sector arise from incorrect classification and documentation.

Practical Risk Matrix

Risk Area	Possible Consequence	Corrective Action
Fixed fees shown as donations	Proceedings under Section 73 or 74 (depending on facts)	Reclassification
No tax invoice for taxable supply	Penalty exposure	Proper invoicing
Reverse charge ignored	Tax and interest liability	RCM review
Mixed accounting of receipts	Audit disputes	Ledger segregation

Most disputes begin at the documentation stage.

Not at the activity stage.

12-Step GST Correction Framework for Trusts and NGOs

Where practices require correction, the following structured framework should be adopted:

Step	Action	Objective
1	Review all receipts and payments for the last two financial years	Identify exposure
2	Separate donations from service-linked receipts	Correct classification
3	Identify exempt activities separately	Proper exemption claim
4	Identify taxable activities separately	Proper tax discharge
5	Stop issuing donation receipts for compulsory collections	Eliminate classification risk
6	Issue proper tax invoices wherever required	Statutory compliance
7	Review reverse charge liabilities	Avoid hidden defaults
8	Review ITC eligibility and reversals	Credit discipline
9	Correct GST returns wherever required	Return accuracy
10	Maintain separate ledgers for donation, exempt and taxable activities	Audit clarity
11	Implement internal GST SOPs	Process discipline
12	Conduct annual GST health-check	Preventive compliance

This framework is corrective, practical and litigation-preventive.

Five-Question GST Decision Tool for Trusts and NGOs

Before issuing any receipt or making any payment, ask:

Question	If Yes	If No
Is there a supply?	Proceed	Outside GST possible
Is payment linked to activity?	Consideration exists	Donation possible
Is payment mandatory?	Supply likely exists	Donation may be possible
Does exemption apply?	Exempt supply	Taxable supply
Does RCM apply?	Pay under RCM	Forward charge or none

This simple framework resolves most practical GST issues.

Frequently Asked Questions (FAQ)

Can a charitable trust issue donation receipts for compulsory programme fees?

No.

If payment is compulsory and linked to participation or service, it becomes consideration.

Its GST treatment will depend upon whether the underlying activity is exempt or taxable.

Are spiritual retreat fees taxable under GST?

Not necessarily.

If the activity qualifies under charitable exemption provisions relating to religion, spirituality or yoga, the supply may remain exempt.

Are free educational programmes taxable?

No.

Where there is no consideration, GST generally does not arise.

Does reverse charge apply even if the trust provides exempt services?

Yes.

Reverse charge liability on inward notified supplies is independent of outward exemption.

Key GST Compliance Focus Areas for 2026

Compliance Area	Why It Matters
Donation-linked receipts	High scrutiny area
Reverse charge compliance	Frequently missed
Exemption documentation	Critical for audit defence
Ledger segregation	Essential for clarity
Activity classification review	Prevents litigation

GST compliance for charitable institutions is increasingly documentation-driven.

Classification discipline is now essential.

Professional Verdict

GST law provides meaningful protection to genuine charitable and spiritual activities through specific exemptions.

But exemption is never automatic.

It must be:

• legally available,
• correctly classified,
• properly documented, and
• properly disclosed.

The greatest GST risk for charitable institutions is not the activity itself.

It is the incorrect classification of that activity.

The safest compliance model remains simple:

Principle	Result
Correct classification	Correct tax treatment
Proper documentation	Strong legal defence
Correct exemption claim	Reduced litigation
Reverse charge compliance	Hidden risk control
Annual GST review	Long-term certainty

Charitable purpose and statutory compliance must always move together.

Because institutions built on public trust must remain equally strong in legal compliance.

Disclaimer: The above views are general in nature and may require fact-specific examination depending on the structure, documentation and actual conduct of activities.

Uber Corporate Payments: TDS under Section 194C and GST Compliance — Getting the Tax Base Right

 By CA Surekha Ahuja

A Practical Compliance Note for Companies Using Uber Business and Corporate Wallet (FY 2026–27)

Corporate travel through Uber Business and Uber Corporate Wallet has become a standard operating expense for many businesses. Employee movement, airport transfers, inter-office visits and client travel are now routinely billed through centralized corporate accounts, often aggregating to ₹1 lakh to ₹1.5 lakh per month or more.

But with this operational convenience comes a recurring compliance question:

Should TDS be deducted on the entire Uber invoice or only on Uber’s service fee component?

This is not a small accounting issue.

A wrong approach can affect tax deduction, expense allowability, cash flow and GST input tax credit.

The confusion largely arises because Uber invoices or billing summaries are often viewed as a single consolidated amount, whereas the underlying transaction is commercially split into two different components.

That distinction is the key to correct compliance.

The Real Structure of an Uber Corporate Payment

A typical finance team may receive or process a monthly Uber billing statement like this:

Particulars	Amount
Total Uber Billing (including GST)	₹1,30,000

At first glance, the natural assumption is simple:

Payment is being made to Uber. Therefore, TDS should apply on the full amount.

But commercially, the transaction is not that simple.

Under the aggregator model, Uber facilitates transportation through drivers and earns a service fee for that facilitation.

This means the total invoice generally consists of:

Component	Approximate Value	Nature
Driver Fare	₹97,500	Transportation value
Uber Service Fee	₹32,500	Uber’s retained revenue

This distinction is fundamental.

The total payment may be ₹1,30,000.

But Uber’s own revenue may be only ₹32,500.

And for TDS purposes, identifying the revenue component matters.

Why the Full Invoice Is Not Always the Correct TDS Base

The practical issue is not whether TDS applies.

It is:

What is the correct amount on which TDS should apply?

If the full invoice is treated as Uber’s contractual income, TDS would be deducted on ₹1,30,000.

But if a substantial part of that amount merely represents transportation charges collected under the aggregator structure, then deducting TDS on the gross amount may not reflect the real income element.

Uber’s own business FAQs clarify that TDS under Section 194C applies on Uber’s service fee, while transportation-related payouts are dealt with separately in the Uber-driver ecosystem.

That creates an important compliance distinction.

The practical position can therefore be summarized as follows:

Particulars	TDS Position
Is TDS applicable?	Yes
On full invoice value?	Generally No
On Uber’s service fee?	Yes
On transportation charges?	Normally No

This approach aligns deduction with the actual service income.

That is the commercially rational approach.

Practical Computation — The Difference Is Significant

Assume the monthly Uber billing is ₹1,30,000.

Economic split:

Particulars	Amount
Driver Fare	₹97,500
Uber Service Fee	₹32,500

TDS if deducted correctly:

Basis	Rate	TDS
Uber Service Fee	2%	₹650

TDS if deducted on full invoice:

Basis	Rate	TDS
Gross Invoice	2%	₹2,600

Difference:

Particulars	Amount
Excess deduction per month	₹1,950
Annual excess deduction	₹23,400

This is not a tax saving.

It is simply tax deduction on the correct base.

What If Uber Does Not Clearly Show the Service Fee?

This is the most common practical challenge.

In many cases, companies may receive a consolidated statement or export where Uber’s service fee is not separately visible.

That does not mean the issue can be ignored.

It means the company must build documentary support.

The practical process should be:

Step	Action
1	Seek bifurcation from Uber
2	Preserve written communication
3	Maintain internal working papers
4	Apply a reasonable documented basis where split is unavailable

Where historical billing patterns indicate that Uber’s retained fee generally falls within a consistent range, that pattern may support the internal working.

The objective is not approximation.

The objective is documented approximation.

That distinction matters in scrutiny.

Suggested Internal Documentation Approach

For recurring Uber spends, maintain:

Document	Importance
Uber Invoice/Billing Statement	Primary transaction proof
Email requesting breakup	Due diligence support
Internal computation sheet	Basis of TDS deduction
Challan 281	Deposit evidence
Bank payment proof	Payment trail
Form 16A	TDS compliance proof
GST reconciliation	ITC substantiation

In practical tax matters, documentation often determines whether a tax position survives scrutiny.

GST Compliance — The Second Half of the Issue

The Uber invoice issue is not only a TDS issue. It is equally a GST issue.

The same bifurcation that determines the TDS base also determines the GST treatment.

Generally: 

Component	GST Rate
Transportation Charges	5%
Uber Service Fee	18%

Illustration:

Component	Value	GST
Driver Fare	₹97,500	₹4,875
Uber Service Fee	₹32,500	₹5,850
Total GST	—	₹10,725

This directly impacts ITC.

Annual ITC impact:

Particulars	Amount
Monthly ITC	₹10,725
Annual ITC	₹1,28,700

That is commercially significant.

But claiming ITC is not automatic.

The normal GST conditions must still be satisfied:

Condition	Importance
Valid tax invoice	Mandatory
Business use	Necessary
Reflection in GSTR-2B	Important
Proper accounting	Essential

Therefore, invoice bifurcation is important for both TDS and GST.

It is not merely a tax deduction issue.

It is a tax reporting issue.

A Simple Monthly Compliance Process

A simple internal process can eliminate recurring confusion:

Stage	Action
Invoice received	Review structure
Verify service fee	Identify TDS base
Deduct TDS	On service fee
Deposit TDS	Within due date
File Form 24Q	Quarterly
Download Form 16A	Quarterly
Reconcile GST ITC	Monthly

This process takes very little time.

But it prevents avoidable disputes.

Where Businesses Commonly Go Wrong

Three recurring mistakes are seen:

Mistake	Impact
Deducting TDS on full invoice without analysis	Excess deduction and cash blockage
Ignoring service fee bifurcation	Weak tax position
Claiming GST without reconciliation	ITC mismatch or reversal

These are avoidable.

Provided the billing structure is understood correctly.

Tax Risk If Mishandled

Improper handling may trigger:

Issue	Consequence
Wrong deduction base	Tax scrutiny
Short deduction	Interest exposure
Non-deduction	Assessee in default consequences
Weak documentation	Explanation difficulty

Further, where TDS is held applicable and not properly deducted, disallowance under Section 40(a)(ia) may affect the allowability of the expense itself.

That converts a compliance issue into a tax cost.

Conclusion

Uber corporate billing should not be treated like an ordinary vendor invoice.

It is an aggregator-based commercial model.

And aggregator models require understanding the components of the payment.

The critical distinction is simple:

The amount paid to Uber and the amount representing Uber’s income may not be the same.

That distinction affects both:

• TDS under Section 194C
• GST input tax credit

For businesses with recurring Uber spends, the right approach is straightforward:

identify the service fee, deduct tax on that component, maintain documentary support and reconcile GST correctly.

The issue is not whether TDS should be deducted.

The issue is whether TDS is being deducted on the correct amount.

That is what ultimately protects compliance, cash flow and tax efficiency.

GST on Sale of Old Motor Vehicles: Margin Scheme, Capital Asset Disposal and the Legal Position under GST

 By CA Surekha Ahuja

Introduction

The sale of old motor vehicles under GST continues to be one of the most misunderstood areas of indirect taxation, not because the taxability is unclear, but because the valuation mechanism differs according to the nature of the transaction. A used vehicle may be sold by a dealer as part of trading activity, by a business as disposal of a capital asset, or by an individual as sale of a personal asset. Each category carries a different GST consequence.

The practical significance of this distinction is substantial. In one case, GST may apply only on the margin; in another, on the value after depreciation; and in some cases, no GST may arise at all. The issue has gained further attention after the Advance Ruling in Ponnusamy Thangaraj, where the Authority adopted a restrictive approach and subjected the entire sale consideration to GST.

The real question, therefore, is not whether GST applies, but on what value it applies.

The GST Framework on Sale of Old Motor Vehicles

GST law does not treat every sale of an old motor vehicle in the same manner. The valuation depends on the capacity in which the vehicle was held.

Where a person is engaged in the business of buying and selling used vehicles, the transaction falls within the margin scheme under Rule 32(5) of the CGST Rules. In such cases, GST is payable only on the difference between the selling price and the purchase price.

$\text{Value of Supply} = \text{Selling Price} - \text{Purchase Price}$

This reflects the GST principle that tax should be levied only on the value added by the dealer and not on the entire turnover.

A different treatment applies where the vehicle is held as a capital asset in business. Notification No. 08/2018-Central Tax (Rate) provides a separate valuation mechanism, recognising that such assets suffer depreciation over time and that GST should apply only on the value remaining after adjusting the depreciated base.

$\text{Value of Supply} = \text{Sale Consideration} - \text{Written Down Value (WDV)}$

This ensures that GST does not become a tax on capital recovery.

Where the vehicle is sold by an individual as a personal asset and not in the course or furtherance of business, the transaction generally remains outside the scope of GST.

The Real Distinction: Nature of Holding

The most important principle in determining GST on sale of old motor vehicles is that the law looks at the nature of holding and not merely the identity of the seller.

A dealer and a business may both sell an old car, but the GST treatment cannot be identical if the vehicle was held for entirely different commercial purposes.

Nature of Holding	Applicable Provision	Tax Base
Stock-in-trade	Rule 32(5)	Margin
Capital asset	Notification 08/2018	Sale value less WDV
Personal asset	Outside GST	Nil

This distinction forms the legal foundation of correct valuation.

AAR in Ponnusamy Thangaraj: Why It Matters

In Ponnusamy Thangaraj, the applicant sought to adopt margin-based valuation on sale of a used motor vehicle. The Authority denied the benefit on the ground that the applicant was not engaged in the business of buying and selling second-hand goods and therefore could not claim the margin mechanism.

As a result, GST was directed to be paid on the full sale consideration under Section 15(1).

The significance of this ruling lies not merely in its conclusion, but in its reasoning. By linking eligibility for concessional valuation to dealer status, the ruling has raised concerns for ordinary businesses disposing of capital assets.

Whether the Restrictive View is Correct

A closer reading of Notification No. 08/2018 shows that it does not require the supplier to be a dealer in second-hand goods. Its focus is on the asset itself and the conditions attached to its disposal.

Broadly, the conditions revolve around:

• the vehicle being an old or used motor vehicle
• the supplier being a registered person
• non-availment of input tax credit
• identifiable depreciation where applicable

The notification addresses a separate commercial reality from Rule 32(5). One governs trading inventory; the other governs business asset disposal.

Treating both under the same interpretational lens defeats the legislative distinction.

Further, as a settled principle of tax interpretation, a specific valuation mechanism prevails over a general valuation rule. Therefore, where Notification No. 08/2018 applies, Section 15(1) should not become the default basis.

Practical Compliance and Advisory Perspective

For taxpayers, the legal position alone is not enough. The sustainability of the position depends on documentation.

Businesses intending to apply Notification No. 08/2018 should ensure:

• the vehicle is properly reflected in the fixed asset register
• depreciation is consistently claimed under income tax law
• no input tax credit has been availed on purchase
• sale documentation clearly records the valuation basis
• accounting treatment remains consistent across financial and tax records

In practical scrutiny, disputes often arise not because the law is weak, but because the evidence is incomplete.

Where classification and records are strong, the defence under Notification No. 08/2018 remains significantly stronger.

Where they are weak, the Department may seek to apply Section 15(1) and tax the full consideration.

Conclusion

The GST treatment on sale of old motor vehicles is fundamentally driven by the nature of holding and not merely by the act of sale. A dealer selling used inventory and a business disposing of a depreciated capital asset operate under different commercial and legal frameworks and therefore cannot be subjected to the same valuation principle.

Rule 32(5) and Notification No. 08/2018 are distinct statutory mechanisms designed for distinct situations. The former taxes trading margin; the latter taxes value over depreciated cost.

The ruling in Ponnusamy Thangaraj may influence departmental scrutiny, but it does not alter the statutory framework. For taxpayers, the key lies in correct classification, robust documentation, and consistent accounting treatment.

Under GST, the question is rarely whether tax is payable. The real question is on what value it is payable—and in the sale of old motor vehicles, that distinction makes all the difference.