18% GST on Used Car Sales – New Rule Explained

New Delhi: The GST Council has announced a significant increase in the Goods and Services Tax (GST) on the sale of used or second-hand cars, raising it from 12% to 18%. Previously, different rates applied depending on the type of vehicle. This change has raised questions among many regarding the new GST rules for used cars, including how much GST will be charged, whether it needs to be paid when selling a car, and whether this rule applies to everyone.

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Key Points of the New GST Rule:

1. Applicability:
   • The new GST rule will apply only to individuals or businesses registered under GST who engage in buying and selling used cars. These include companies like Spinny, Car Dekho, and Cars24.
   • These businesses are required to have GST registration and will need to pay 18% GST on such transactions.
2. Impact on Individual Sellers:
   • Good news for ordinary citizens: This new GST rule will not impact individuals selling their personal used cars.
   • If you are selling your used car as an individual, no GST will be payable.
3. Loss Sales:
   • If a GST-registered business sells a used car at a loss, no GST needs to be paid. The tax only applies when the business makes a profit from the car sale.
   • In cases of loss, no GST will be imposed.
4. Current GST on Used Cars:
   • 12% GST is currently applied to all used and second-hand automobiles, including electric vehicles (EVs).
   • With the change, cars with engine capacities of 1200 cc or more, or a length of 4000 mm or more, as well as used petrol, diesel cars, SUVs, and vehicles with an engine capacity of 1500 cc or more and a length of 4000 mm or more, now fall under 18% GST.
5. Impact on Businesses:
   • This increase in GST will most significantly affect businesses that claim input tax credit (ITC) on vehicle purchases.
   • For consumers, the rule depends on whether they purchase the vehicle from a registered seller or an unregistered seller.
   • The new GST rule only applies to GST-registered businesses, not to the general public.
   • Additionally, businesses will not have to pay GST on sales made at a loss.
6. Transparency and Tax Collection:
   • The new rule aims to bring transparency and ensure tax collection in the business of buying and selling used cars.

This revised GST regulation clarifies how the taxation system will now work for used cars, focusing on businesses that trade in these vehicles while exempting individual sellers from having to pay GST.