The latest decision made by the GST council is about bringing in 18% GST to be imposed on used vehicle sales margin. Let’s keep it simple and see what it means.
What does the New GST Rule say?
It states that now, when a registered business sells a used car, an 18% GST will be levied on the margin-the difference between actual purchase price and selling price of the vehicle.
Example:
Purchased for: ₹ 5,00,000
Sold for: ₹ 6,00,000
Margin: ₹ 1,00,000
GST: 18% of ₹ 1,00,000 = ₹ 18,000
Why It Was Changed?
If sold at a loss (negative margin), no GST applies.
Simplification: Applies a single rate of taxation on used cars, which now comprises electric vehicles as well.
Fairness: It only taxes profits actually realized.
Clarity: Avoid confusion in calculating taxes.
Who Will Be Affected?
Registered Traders:
The GST applies to Dealers doing business in the purchase and sale of used vehicles. Even when they maintain proper records, a taxable margin is usually calculated for each sale instead of a global taxable margin. As such, there is a need to maintain accurate records for proper margin calculation.
Consumers:
Consumers who buy used goods from registered dealers will indirectly incur the costs of GST. Direct private transactions between individuals will not be taxed-the purchase of the vehicle from one private citizen to another.
Core Features of the Regulation
Profitable Margin: The Goods and Services Tax applies only on the profit margin arrived after deducting the purchase price or the depreciated value (if claimed) of vehicles.
Exemption for Losses: Sales which incur a loss, shall not attract any Goods and Services Tax.
Substantial Importance for Vehicle Sector
Clarity to Boost Transparency: A need for marked income margins by dealers that will reflect trust amongst customers.
Incentives for the electric vehicle: Simplifying the tax structure for electric vehicles could induce their resale and adoption.
It standardizes taxes: It abolishes all of the different tax rates and confusions and thus makes dealer compliance a lot easier.
Constraints of the Rule
Administrative Obligation: The dealers are required to maintain proper records for margin calculations.
Effect on Price: For consumers, the marginal increase in GST paid will mean prices that are slightly more on purchases made from registered dealers.
Practical Examples
Scenario 1: Positive Margin
- Buying Price: ₹8,00,000
- Selling Price: ₹10,00,000
- Margin: ₹2,00,000
- GST Liability: 18% of ₹2,00,000 = ₹36,000
Scenario 2: Negative Margin
- Buying Price: ₹12,00,000
- Selling Price: ₹10,00,000
- Margin: -₹2,00,000 (loss)
- GST Liability: None
What are the Advantages for Consumers?
Fair Pricing: The rule states that tax shall be available only on the dealer’s profit not on total pricing.
Transparency of Costs: Consumers will have proper knowledge of the precise tax component contained in the car prices.
Conclusion
The bar of 18% GST on the sales margin for used cars is an advancement in the tax regime. While it will raise the price marginally for the buyer, it will create a transparency and fairness in the market. For industry, it reduces compliance and encourages growth in general, and for resale of electric vehicles in particular.
Notably, it is also going to make the second-hand car market place better. Now businessmen will pay taxes in fair amounts.