GST on Sale of Used Car by Company to Employee

A successful organisation is built on the back of high-grade efficiency and a skilled workforce. Hence, it becomes important to reward such hard work with certain exclusive perquisites. These days, most organisations offer different incentives and facilities for the welfare of their employees, including transportation facilities or company cars.

Company cars are provided by the organisation to employees for official use, personal use, or both for a specific time. Based on different criteria and circumstances, the company may choose to sell that used car to the employee and transfer the ownership to them.

If you are wondering about the different applicable charges and GST on the sale of a used car, you’ve come to the right place! Let’s understand more about GST on the sale of used cars by the company to employees.

Sale of Used Car by Company to Employee

Companies typically sell the used car utilised by an employee based on the market value of the car at that time of sale. During this process, the company usually does not charge them GST on the sale of an old car as they would have paid the GST during the vehicle procurement. However, they collect the amount of GST they paid to the seller from the employees in the form of a perquisite tax. 

The rate of GST also depends on the type of car an employee is buying. When an employee is buying a small or a medium-sized car, the GST rate is 18%, while luxury car purchases come with a 28% GST. 

For example: 

Car Category	Car Model	GST Rate
Small/mini cars	Maruti Swift	18%
Mid-size	Honda City	18%
Luxury cars	Audi	28%

Steps to Calculate the Taxable Perquisites 

When the company sells used cars to its employees, the perquisite value will be calculated based on the following: the actual cost minus the depreciation on WVD (written down value), i.e., 20% for every complete year.

For example, a company named XYZ buys a car worth ?20 Lakh in the year 2020 and then gives the car as a benefit to its employee. Later, the company decided to sell that car to the same employee for ?12 Lakh in August 2022.

Conclusion

The Goods and Service Tax (GST) was introduced as a successor of Value Added Tax (VAT) and is applicable throughout India. The applicable GST on the sale of a used car is 18% for small or medium-sized cars and 28% for luxury cars. 

When a company sells a car to its employees, they generally do not charge the GST as the same has been paid by the company during vehicle procurement. So, when employees buy a car from the company, they do not pay the GST. However, this GST is collected later from the employee in the form of perquisite tax.

Disclaimer

We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Pre-Owned Car Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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