GST hike on Used Cars Sale will shift Transactions to informal channels

The GST Council’s latest proposal to raise the GST rate on the sale of old and used vehicles from 12% to 18% is projected to have a negative impact on trade growth through formal and online channels, according to survey released on Monday.

Currently, 42% of surveyed used car consumers do transactions through unauthorised channels, and this figure is projected to rise following the Council’s decision.

The GST Council, which met on 21st Dec 2024, approved an increase in GST for used vehicles, including electric vehicles (EVs), based on the value that represents the margin (difference between the purchase and selling price) by resale platforms that facilitate these transactions, such as Cars24 and Carwale.

Individuals selling or purchasing old vehicles, on the other hand, will continue to pay the lower 12% tax rate. On the other hand, just 10% of these buyers made purchases through online classified services such as OLX auto.

The majority of respondents (30%) bought or sold inside their close social networks, while 25% used a trade-in at a dealership to get a new vehicle.

Consumers expressed a lack of trust in using online marketplaces or vehicle dealerships, particularly because these transactions involve large sums of money.

According to the Indian Blue Book research by used car vendors CarandBike and Das WeltAuto, India’s organised used automobile market, currently worth $32.44 billion, is predicted to more than double to $73 billion by FY28.

According to market research firm Mordor Intelligence, the demand for pre-owned luxury cars has been increasing at a rate of 35-40% year on year (YoY), as owners of luxury cars typically sell their vehicles after a year or two and switch to better models.

As local dealers and online players grow the market, demand from tier-1 and tier-2 cities is also increasing.

The survey got more than 23,000 responses from consumers who purchased or sold a used car (single use) in 288 districts across India. Approximately 45% of responders were from Tier 1, 23% from Tier 2, and 32% from Tiers 3, 4, 5, and Rural districts.