The Goods and Services Tax (GST) applies to various goods and services in India, including the sale of old and used cars. Many individuals and businesses are unclear about the implications of GST when selling pre-owned vehicles. Additionally, there are several myths about GST registration and its applicability in such cases. In this article, we will explain the GST rules on selling old cars and debunk common misconceptions.
GST Applicability on Sale of Old Used Cars
The sale of old or used cars in India falls under GST taxation, but the applicable rate depends on various factors, including the type of seller, nature of the transaction, and category of the vehicle. Here’s how GST is levied:
- Sale by a Registered Business: If a business registered under GST registration sells a used car, it must charge GST on the sale price.
- Sale by an Individual: If an individual sells a used car to another individual, GST does not apply.
- Dealer Selling Old Cars: Car dealers who sell used cars are liable to pay GST at reduced rates based on the vehicle’s type and size.
- Leased or Company-Owned Cars: If a company sells its old vehicles, GST applies, and Input Tax Credit (ITC) may be adjusted based on previous claims.
GST Rates on Old and Used Cars
As per the GST guidelines, the applicable tax rates on used cars are:
- Small Cars (Petrol/Diesel below 1200cc): 12%
- Mid-Sized Cars (1200cc to 1500cc): 18%
- Luxury Cars (Above 1500cc and SUVs): 18%
These rates are applicable on the transaction value (sale price) after deducting depreciation benefits.
Common Myths About GST on Used Cars
Myth 1: GST is Always Applicable on the Sale of Used Cars
Reality: GST is only applicable if the seller is a registered entity under GST registration. Individuals selling their personal cars are exempt from GST.
Myth 2: GST is Charged on the Original Price of the Car
Reality: GST is applied only to the resale price of the used car, not the original purchase price.
Myth 3: GST Rates on Used Cars are the Same as New Cars
Reality: The government has revised GST rates on used cars to lower slabs, unlike the higher tax rates on new cars.
Myth 4: Input Tax Credit (ITC) is Available for Used Cars
Reality: ITC on used cars is available only if they were initially purchased for business use and GST was charged at the time of purchase.
Conclusion
Understanding GST on selling used cars in India is essential for businesses and individuals to avoid unnecessary tax liabilities. While GST registration is required for businesses dealing in used cars, individual sellers are not subject to GST. Additionally, the government has implemented reduced tax rates to make used car transactions more affordable. Dispelling common myths and staying informed about GST rules will ensure compliance and a hassle-free resale process.
