After the public backlash over the increased tax on caramelised popcorn, the 18 per cent Goods and Services Tax (GST) on selling old vehicles has now caught the public’s attention, sparking discussions and also confusion among potential sellers on how this would affect them.
The GST Council in its meeting last week decided to prescribe a single rate of 18 per cent on sale of all old and used vehicles including all EVs, earlier leviable at different rates. As the confusion among the car owners built up, a video of finance Minister Nirmala Sitharaman explaining the 18 per cent GST on selling of old cars surfaced on social media.
18% GST PAYABLE ONLY ON MARGINS
“It is on that margin, the value between purchased price and resale price. Bought it for ₹12 lakh, selling it for ₹9 lakh in the name of a second-hand used vehicle, on the margin only this 18% has been put, as would be for any used car. So it is on the margin and not the entire amount at which the car is being sold,” Nirmala Sitharaman is heard explaining.
The 18 per cent GST would not be applicable if an individual sells old and used car to another individual.
If a GST registered person has claimed depreciation, the tax is payable only on the value representing the margin – the difference between selling amount and the depreciated value of such goods. Also Read: Instagram influencer’s humorous take on GST hike leaves netizens in splits
Explained with example:
If an individual sells a car (with original purchase price of ₹20 lakh) to another individual at ₹10 lakh and claims depreciation of ₹8 lakh, the seller does not have to pay any GST as the margin of the supplier – difference between the selling price of ₹10 lakh and the depreciated value of ₹12 lakh – is negative.
GST IS NOT PAYABLE WHEN MARGIN IS NEGATIVE.
When does a seller pay 18 per cent GST?
A seller will have to pay GST when difference between the selling price and the depreciated value is NOT negative.
In case the depreciated value in the above example remains the same at ₹12 lakh and the price the owner is selling the vehicle is ₹15 lakh, GST will be payable on the margin which is ₹3 lakh.
In all other cases, that is if a seller does not claim depreciation under Section 32 of the Income Tax Act 1961, GST is payable only on the margin – the difference between selling price and the purchase price. When such margins are negative, no GST is payable.
“The sale price – Purchase value [after reducing depreciation]. In case the value is negative, then no GST would be payable. The above is subject to the condition that the registered person selling the car is not claiming any Input Tax credit on purchase of the car,” Pankaj Jain, Tax Partner, EY India, was quoted as saying by ET.
BJP IT head Amit Malviya explains more: “Importantly, this tax rate applies only to registered persons (typically businesses involved in the trade of old and used vehicles) and does not apply to unregistered persons (the general public).”
