The Goods and Services Tax (GST) Council, in its 55th meeting, clarified taxation rules for the sale of old and used vehicles, including electric vehicles (EVs).
A uniform GST rate of 18 per cent now applies to such sales, replacing the previous variable rates. Importantly, no new taxes have been introduced for these transactions.
GST on the sale of old and used vehicles is applicable only to people or businesses registered for GST and engaged in the purchase and resale of such vehicles. Those not registered for GST are not required to pay the tax.
GST CALCULATION ON USED VEHICLE SALES
The Goods and Services Tax (GST) on old and used vehicles is calculated solely on the seller’s margin, not the entire sale price. The margin is determined by the difference between the sale price and the vehicle’s depreciated or purchase value, according to guidelines issued by the GST Council.
For sellers who have claimed depreciation under Section 32 of the Income Tax Act, GST is applied only on the margin between the sale price and the depreciated value of the vehicle.
In cases where the sale price is lower than the depreciated or purchase value, creating a negative margin, no GST is applicable.
EXAMPLES OF GST CALCULATION
Officials have outlined clear examples to demonstrate how GST is applied under different scenarios:
Negative margin with depreciation
Purchase Price: Rs 20 lakhs
Depreciated Value: Rs 12 lakhs
Selling Price: Rs 10 lakhs
Margin: Negative (Rs 10 lakhs – Rs 12 lakhs = -Rs 2 lakhs)
GST Payable: None.
When the sale price is lower than the depreciated value, no GST is payable.
Negative margin without depreciation
Purchase Price: Rs 12 lakhs
Selling Price: Rs 10 lakhs
Margin: Negative (Rs 10 lakhs – Rs 12 lakhs = -Rs 2 lakhs)
GST Payable: None.
Even when depreciation is not claimed, GST is not applicable on a negative margin.
Positive margin
Purchase Price: Rs 20 lakhs
Selling Price: Rs 22 lakhs
Margin: Rs 2 lakhs (Rs 22 lakhs – Rs 20 lakhs)
GST Payable: 18 per cent of Rs 2 lakhs = Rs 36,000.
GST is applied at a standard rate of 18 per cent when the margin is positive.
KEY TAKEAWAYS
A standard 18% Goods and Services Tax (GST) applies to the sale of used vehicles, including electric vehicles (EVs), simplifying the taxation process for such transactions.
GST is payable only by sellers registered under GST laws, such as businesses involved in the purchase and resale of vehicles. Private sales between individuals are exempt from GST, ensuring that the tax burden applies only to commercial transactions.
The tax is calculated solely on the seller’s margin, defined as the difference between the selling price and the vehicle’s depreciated or purchase value. If the margin is negative — meaning the sale price is lower than the vehicle’s depreciated or purchase value — no GST is payable.