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.

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.
   
• Minor Processing Allowed: Dealers can carry out minor processing, such as repairs or refurbishing, provided it does not change the nature of the 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.

How Depreciation Affects GST on Old Vehicle Sales?
 

Notes:
 

• Depreciated Value: This is calculated as per Section 32 of the Income Tax Act using prescribed depreciation rates for motor vehicles.
   
• Margin Scheme: GST is calculated only on the profit margin (Selling Price - Depreciated Value), not the full selling price.
   
• No Input Tax Credit (ITC): Dealers opting for the Margin Scheme cannot claim ITC on the purchase of used vehicles.
   
• Private Sellers: These rules apply only to GST-registered dealers. Sales by private individuals are exempt from GST.

These calculations ensure GST is only levied when the actual economic value is added through the resale.

Conclusion

Old cars are taxed differently depending on the seller's position under India's Goods and Services Tax (GST) regime. Although the Margin Scheme imposes GST on used automobiles sold by registered dealers, the tax is only applied to the margin, or the difference between the purchase price and the cost price, and not the full transaction value. As a result, the taxation procedure is fair and transparent. Those who are not registered for GST are excluded from paying GST on the sale of used automobiles.

FAQs

Q. Is GST applicable when I sell my used car as an individual?

No, GST is not applicable for private individual-to-individual sales.

Q. What is the GST rate on used cars?

18% under the Margin Scheme for registered dealers.

Q. Is GST charged on the full selling price of a used car?

No, GST is charged only on the profit margin.

Q. Can I claim an Input Tax Credit (ITC) on the purchase of a used car under the Margin Scheme?

No, ITC cannot be claimed when using the Margin Scheme.
 

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