GST on Used Cars – Tax Rates, Valuation & Dealer Rules

In 2013, Khrisna Mehta spent ₹8,00,000 on an automobile. He sold it for ₹3,00,000 in 2025 after using it for 12 years. Enquiring about GST, he found that no GST applied to him because he was a private individual and not a dealer registered with the GST. His selling price was less than the depreciated value of ₹5,00,000, thus even if he were registered under the Margin Scheme, the margin would be negative and no GST would be applied.

What Is GST and How Does It Apply to Used Cars?

Under the Goods and Services Tax (GST) regime in India, the taxation of used cars depends on whether the seller is a registered business or a private individual.

GST Applicability to Used Car Sales

• Registered Businesses: If a GST-registered dealer sells a used car, GST is applicable. The tax is levied on the profit margin, the difference between the selling price and the purchase price or the depreciated value of the vehicle. This is known as the Margin Scheme.
   
• Private Individuals: Private sales between individuals are exempt from GST.

Margin Scheme Details
 

• Tax Rate: The applicable GST rate is 18%.
   
• Calculation: GST is calculated only on the profit margin. For example, if a dealer purchases a used car for ₹5,00,000 and sells it for ₹6,00,000, the profit margin is ₹1,00,000. GST payable would be 18% of ₹1,00,000, amounting to ₹18,000.
   
• Negative Margin: If the selling price is less than the depreciated value, resulting in a negative margin, no GST is payable.

Important Considerations:

• Documentation: Proper documentation, including purchase and sale invoices, is essential for GST compliance.
• Depreciation: The depreciated value of the vehicle is considered in calculating the profit margin for GST purposes.

Read More – GST On the Sale Of Used Cars

GST Rates on Used Cars: Updated Guidelines
 

Margin Scheme: Tax Only on Profit, Not Full Price

Under the Goods and Services Tax (GST) regime in India, the Margin Scheme allows GST-registered dealers to pay tax only on the profit margin from the sale of used goods, such as cars. This scheme ensures that GST is levied only on the value added by the seller, avoiding double taxation on goods that have already been subject to tax.

Key Features of the Margin Scheme

• Taxable Supply: This applies to the sale of second-hand goods, including used cars, by GST-registered dealers.
   
• Calculation of GST: GST is calculated on the profit margin, which is the difference between the selling price and the purchase price (or depreciated value if depreciation has been claimed).
   
• No GST on Negative Margin: If the selling price is less than or equal to the purchase price, resulting in a negative margin, no GST is payable.
   
• No Input Tax Credit (ITC): Dealers opting for the Margin Scheme cannot claim ITC on the purchase of second-hand goods.
   

Example:

Suppose a GST-registered dealer purchases a used car for ₹5,00,000 and sells it for ₹6,00,000 after minor repairs. The profit margin is ₹1,00,000. GST at 18% on ₹1,00,000 is ₹18,000. Therefore, the dealer will remit ₹18,000 as GST to the government.

Also Read - Why Self-Finance Is the Smartest Way to Buy a Car

How Depreciation Affects GST on Old Vehicle Sales?
 

20,00,000

12,00,000

10,00,000

-2,00,000

18%

0

2. Positive Margin (GST Applies)