Experts in the field on Tuesday clarified that the GST Council has not recommended the imposition of any new tax for old and used vehicles in the recent meeting. The experts clarified that the GST Council has simplified the tax rate and recommended unifying and prescribing a single rate of GST on the sale of all old and used vehicles including EVs at 18%.
“As a measure of simplification, the Council recommended unifying and prescribing a single rate of GST on sale of all old and used vehicles including EVs at 18% which was leviable at different rates earlier. The GST Council has NOT recommended any imposition of the new tax on the same,” experts on GST rate rationalisation said on Tuesday.
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Earlier, it was conceived that the GST Council has decided to hike the GST rate on old and used vehicles, including electric vehicles, sold by registered businesses, to 18%.
This news sparked widespread discussions throughout the country. However, individuals who are not registered under GST will not be affected by this change. The revised rate was revealed during the 55th GST Council meeting.
As of now, vehicles powered by petrol, LPG, or CNG, with an engine size of 1200cc or larger and a length exceeding 4000mm, are subject to an 18% tax. The same tax rate applies to diesel vehicles with an engine size of 1500cc or higher and SUVs with engine capacities over 1500cc.
On the other hand, new electric vehicles (EVs) are taxed at a lower rate of 5% to incentivize their adoption. However, with the new GST rules, maintaining the 18% tax bracket for used EVs could potentially diminish their attractiveness in the second-hand market.
Experts explained the GST rate on used cars:
1. Who are liable to pay GST on the sale of old and used vehicles?
Ans: Only registered persons such as businesses involved in purchase and selling of old and used vehicles etc are liable to pay GST.
2. Is GST applicable if an individual sells old and used car to another individual?
Ans: No. GST is not applicable in this case.
3. Is the GST payable on sale value of the old and used vehicle?
Ans: Where the registered person has claimed depreciation under Section 32 of the Income Tax Act 1961, GST is payable only on the value representing the margin of the supplier i.e. the difference between consideration received for the supply of such goods and the depreciated value of such goods on the date of supply. Where such margin is negative, no GST is payable.
In any other cases, GST is payable only on the value that represents the margin of the supplier i.e. the difference between selling price and the purchase price. Where such margin is negative, no GST is payable.
Illustration 1:
Suppose a registered person is selling an old and used vehicle to any person at Rs.10 lakhs, where the purchase price of the vehicle was Rs. 20 Lakhs and has claimed depreciation of Rs. 8 Lakhs on the same under the Income Tax Act, then he is not required to pay any GST as the margin of the supplier i.e differential value of the selling price (Rs. 10 Lakhs) and the depreciated value (Rs. 12 Lakhs i.e Rs. 20 Lakh – Rs. 8 Lakh) is negative.
In case the depreciated value in the above example remains same at Rs. 12 Lakhs and the selling price is Rs. 15 lakhs, in that case GST will be payable on the margin of the supplier i.e on Rs. 3 Lakhs @18%.
Illustration 2:
Suppose a registered person is selling an old and used vehicle to any person at Rs.10 lakhs, where the purchase price of the vehicle by the registered person was Rs. 12 Lakhs, then he is not required to pay any GST as the margin of the supplier is negative in this case.
In cases where the purchase price of the vehicle was Rs. 20 Lakhs and the selling price is Rs 22 lakhs, GST will be payable on the margin of the supplier, that is, Rs 2 lakhs.