Major GST Alert: GST on Sale of all Old and Used Vehicles increased to 18%

The Goods and Services Tax (GST) Council approved raising the GST rate on the sale of old and used vehicles from 12% to 18%. This change affects vehicles sold by businesses who claim depreciation and sell vehicles on a margin basis. Individual buyers and sellers of old vehicles would continue to benefit from the reduced 12% GST rate, maintaining affordability in personal transactions.

Certain vehicles are already taxed at 18% under the revised system, including:

• Petrol, LPG, and CNG vehicles with engine capacities of 1200cc or more and lengths exceeding 4000mm.
• Diesel vehicles with engine capacities of 1500cc or more.
• SUVs with engine capacities exceeding 1500cc.

Businesses who sell used electric vehicles (EVs) will now be subject to the 18% tax bracket. Previously taxed at 12%, this change is consistent with the overall tax system for vehicles.

The increase in GST on used EVs is especially important. While new EVs get a 5% GST reduction to encourage adoption, used EVs have a higher 18% rate, which may impair their appeal on the secondary market. Businesses involved in the selling of EVs may encounter issues as operational costs grow due to additional taxes on input parts and services for repair and maintenance, which already carry an 18% GST.

Businesses who resell old vehicles after repairs or maintenance must adapt to the higher tax rate. While the depreciation benefit gives some relief, the higher GST rate may have an impact on profitability, especially for vehicles that require extensive repairs before resale.

On the plus side, the increased 18% GST rate has no effect on persons who buy or sell old vehicles. Individual transactions will continue to be taxed at 12%, ensuring that personal buyers and sellers maintain an affordability advantage.