Blog

2019

Applicability and Rate of GST in case of Sale of Used Cars

Applicability and Rate of GST in case of Sale of Used Cars

With the implementation of the GST Law, there has been lot of confusion regarding applicability of GST on supply of used car. In this article we would focus on points like levy of GST on sale of second hand car, conditions to be satisfied for levy of GST on sale of second hand Car and will also discuss other important matters in this regard.

Provisions for Sale of Second Hand Goods under GST:

GST is levied on the transaction value on any supply of goods and services.

  • However, there are exceptions to the rule. Rules have been prescribed under the law to value certain peculiar transaction.
  • One such transaction is trading of used goods. In order to eliminate double taxation and cascading effect of tax, dealers in used goods are provided an option to pay taxes on the margin of the transaction i.e. Difference between the selling price and the buying price of such goods.
  • In case of negative margin, no GST is payable. (Ref. Rule 32(5) of CGST Rules, 2017).

Levy of GST on Sale of Second Hand Car – Conditions:

  1. Supplier should be a person dealing in buying and selling of second hand cars.
  2. The supply of second hand cars should be a taxable supply.
  3. Cars must be subsequently sold on an “as is” basis or with minor processing which does not change the nature of the car.
  4. Supplier should not avail input tax credit on purchase of such cars.

Other Important Issues pertaining to GST on Sale of Used Car:

Value of used car in Purchase and Sale Transactions in case of a Dealer:

  • As per Rule 32(5) of CGST Rules, 2017, the value on which GST is to be paid is on the margin (Sales Price – Purchase price). In case of negative margin, no GST is payable.
  • Value of used car in purchase and sale transactions in case of other than dealer:

 

Is Asset Depreciable? Valuation
Yes Tax to be remitted on difference between Selling price and Written down Value of asset calculated as per Income tax Act, 1961.
No Tax to be remitted on the difference between selling price and purchase price.

GST Rate on Sale of Used Car:

  • GST Rate on used vehicles have been reduced vide Notification No. 8/2018 Central Tax Rate w.e.f 25.01.2018.

HSN Vehicle Type Engine Capacity Length GST Rate
8703 Petrol Vehicles > 1200 CC 4000 mm 18%
Diesel Vehicles > 1500 CC
SUVs and Utility Vehicles
87 Vehicles other than those mentioned above 12%

Note: Sale of second hand cars is exempt from GST Compensation Cess vide Notification No. 1/2018 under the GST Compensation Cess Act.

GST liability in case of Purchase of Second Hand Car from Unregistered Person:

  • The Government has exempted GST on purchase of second hand car from unregistered person.

Invoicing under GST law on Sale of Used Car:

  • The Invoicing to be done as per the invoicing rules of GST law.
  • The valuation mechanism adopted to be mentioned in the invoice.

Concessional Rate Benefit for Demo Cars:

  • The Demo car is used for the purpose of test drive and sold at a later date.
  • It could be considered as ‘used/old car’.
  • Therefore, the dealer can avail the rate benefits which are applicable for the supply of old and used cars.

ITC on Old and Used Cars Purchased from the Registered Tax Payers:

  • Generally, car dealers work based on margin earned on sale, therefore, they would opt for concessional tax rates and valuation as provided under notification 08/2018 CT(R) and similar notifications.
  • If the dealers are not availing any exemption through the notifications, he would require to discharge GST on entire sale value at full tax rate, wherein he can avail the ITC on purchase of old and used cars.

Treatment of TCS Collected under Provisions of Income Tax Act in sale of Luxury Cars and Motor Vehicles:

  • The Government through Corrigendum to Circular No. 76/50/2018-GST dated 31st December, 2018 has clarified that TCS collected from customer is not included in the value of supply.


Illustration of GST on sale of used car:

 

Used Car Dealer Any other tax payer selling Used Car
Particulars Car A Car B Particulars Car A Car B
A Selling Price 20,00,000 7,00,000 Original Price 20,00,000 25,00,000
B Purchase Price 12,00,000 11,00,000 Depreciated Price 15,00,000 15,00,000
C Profit/Loss (A-B) 8,00,000 -4,00,000 Selling Price 12,00,000 18,00,000
D GST Rate 18% 18% Profit/Loss (C-B) -3,00,000 3,00,000
E GST Payable (C*D) 1,44,000 N/A GST Rate 18% 18%
F GST Payable (D*E) N/A 54,000

Blog Archive


Financial Management