GST on Old Vehicles Now Profit-Based
GST Simplified for Old Vehicle Sales: Profit-Based Taxation Introduced
The GST Council has introduced changes to the rules regarding the sale of old vehicles. Registered traders will now be required to pay GST on the sale of used vehicles only if they earn a profit (margin) on the sale. This rule applies to all types of old vehicles, whether electric or petrol/diesel-powered. The GST rate will be 18%, applicable only to the profit margin, not the total sale price. However, if an individual sells their old car to another individual, no GST will be applicable.
This decision was made during the GST Council meeting last week to streamline the GST structure for used vehicles. Previously, different types of vehicles were subject to varying GST rates, which created confusion. Experts believe this move may reduce the prices of old electric vehicles. Let’s delve deeper into these changes.
Simplified GST for Old Vehicles
Previously, varying GST rates applied to old vehicles, leading to significant confusion. The GST Council has now standardized the rate to 18% for all used vehicles. However, this rate is applied only to the seller’s profit margin, not the total sales price.
Profit margin refers to the difference between the selling price and the depreciated value of the vehicle. Depreciation is the amount deducted from the vehicle’s value annually as per Section 32 of the Income Tax Act, 1961. If a registered trader sells a vehicle at a profit, GST will be applicable only on the profit. If the sale results in a loss, no GST will be charged.
Example 1: No Profit, No GST
A registered trader purchases a used car for ₹20 lakhs and later sells it for ₹10 lakhs after claiming a depreciation of ₹8 lakhs. The depreciated value of the car is ₹12 lakhs. Since the selling price (₹10 lakhs) is lower than the depreciated value (₹12 lakhs), the trader incurs no profit. In this case, no GST is payable.
Example 2: Profit and GST
If the same car is sold for ₹15 lakhs, the trader earns a profit of ₹3 lakhs (₹15 lakhs – ₹12 lakhs). GST at the rate of 18% will be charged on this profit of ₹3 lakhs.
These changes aim to simplify GST compliance for used vehicle sales while encouraging a smoother resale market, particularly for electric vehicles.
