No GST taxed on Sale of Used Vehicles at Loss

Even while social media is rife with jokes and fury about GST on used car sales, government sources have stated that, contrary to common belief, GST will not be applied if the ‘margin’ of sale is negative.

The government had previously stated that no GST would be imposed if the transaction was between two unregistered persons. It has also been stated that no additional tax has been imposed and that the rate on some passenger vehicles has been hiked from 12% to 18%.

According to the sources, GST is only payable on the value indicating the seller’s margin, which is the difference between the sale price and the depreciated value of a passenger vehicle.

Source said GST is only leviable if this margin is positive. To explain, he uses the example of a registered person selling an old and used vehicle to anyone for Rs.10 lakh, despite the fact that the vehicle was purchased for Rs.20 lakh. If the seller is a registered person and has claimed Rs.8 lakh in depreciation under the Income Tax Act, he is not required to pay any GST because the selling price (Rs.10 lakh) and depreciated value (Rs.12 lakh) of the car are negative. However, if the depreciated value in the preceding example remains at Rs.12 lakh and the selling price is Rs.15 lakh, GST will be levied on the margin, which is 18% of Rs.3 lakh.

The GST Council recommended an 18% uniform GST rate on the sale of all old and used vehicles, including EVs. Currently, 18% GST is paid exclusively on the sale of old and used petrol vehicles with an engine capacity of 1200 cc or more and a length of 4000 mm or more; diesel vehicles with an engine capacity of 1500 cc or more and a length of 4000 mm; and SUVs. Tax experts have also stated that only registered persons, such as businesses engaged in the acquisition and sale of old and used vehicles, are required to pay GST.

Following the GST Council announcement on Saturday, social media was flooded with posts stating that the GST would be paid on losses incurred in the sale of used vehicles.

Meanwhile, sources have stated that the Council’s clarification follows a request received from Uttar Pradesh to explain the classification and GST rate applicable to popcorn mixed with salt and spices. This matter was brought before the 55th GST Council, and the Council suggested that it be clarified.

In conclusion, GST would be leviable only if this margin is positive and the government clarified that no GST would be levied if the transaction is between two unregistered persons. The GST Council recommended a uniform GST rate of 18% on the sale of all old and used vehicles, including electric vehicles. Only registered persons, such as businesses engaged in the buying and sale of old and used vehicles, are obligated to pay GST.