GST on the sale of used cars

Demystifying GST Regulations for Selling Used Cars

September 15, 2023 • 4328 views

When it comes to buying or selling a used car, many factors come into play, including the cost, condition, and legal requirements. In recent years, the implementation of Goods and Services Tax (GST) has significantly impacted various sectors, including the automobile industry. That’s why understanding GST on sale of used car is essential for buyers and sellers.
In this article, we will deep dive into the applicability of GST on used cars and various other aspects associated with it. Read on!

GST on Second-hand Cars in India

GST on second-hand cars was introduced in 2017, and the rate of GST for new and used cars was the same. But, to promote the purchase of used cars, the rate of GST on sale of old car was revised and introduced again. The GST rate of second-hand cars might differ based on the type of car.

Here is the applicable GST rate based on the fuel type and engine capacity of the used car shown below:

Types of Used Cars

GST rate

Compensation Cess

Total Applicable Tax

Petrol Car with engine capacity of 1200cc or less

12%

Nil

12%

Petrol Car with engine capacity over 1200cc

18%

Nil

18%

Diesel Car with engine capacity of 1500cc or less

12%

Nil

12%

Diesel Car with engine capacity over 1500cc

18%

Nil

18%

 

Also Read :- GST Calculation for Secondhand Car Dealers

GST on Sale of Used Cars

The applicability of GST on selling a used car entirely depends on the type of seller and whether he or she is registered under the GST. Let’s check the GST regulations under various scenarios:

Individual to Individual:
In India, when individuals sell used cars to one another, no GST fees apply. This exemption stems from the fact that both the buyer and seller are individuals. Under Indian GST law, the sale of a used car is not classified as a "supply," thus exempting it from GST regulations.

Individual to Business:
An individual selling a used car, regardless of the buyer (business or another individual), is generally exempt from GST. This is because the sale isn't considered a "supply" under GST law for unregistered individuals.
If the individual selling the car is registered under GST (unlikely for personal vehicle sales), then GST would apply. The businesses can claim Input Tax Credit (ITC) on the GST paid while purchasing the car, assuming they are registered under GST and use the car for business purposes.

Business to Business:
When the transaction is between two business entities, if any one of the two parties either buyer or seller is registered under the GST norms, a GST will apply to the transaction. Even if the seller is not registered but the buyer is registered, GST charges will be applicable on a reverse charge basis.
However, if none of the business entities are registered under the GST, then no GST will apply to such transactions.

For a better understanding, here is the GST applicability on sell of used cars shown in a tabular format:

Seller Type

Is the Seller Registered?

Is the Buyer Registered?

GST Applicability

Business

No

No

No

Business

No

Yes

Yes (on a reverse charge basis)

Business

Yes

No

Yes

Personal

No

No

No

Car Dealer

Yes

No

Yes

 

Nevertheless, if you are planning to buy a pre-owned car you can consider availing a Pre-Owned Car Loan from Poonawalla Fincorp. The rate of interest starts from 11% per annum along with flexible repayment options and minimal documentation.

Also Read :- GST Calculation on Buying and Selling Used Cars

To Conclude

Understanding GST implications for selling a used car as an individual is straightforward. In most cases, individuals selling their used cars are exempt from GST, regardless of the buyer being a business or another individual. Ultimately, the goal is to ensure a fair and efficient system that benefits both sellers and buyers, contributing to a healthier and more vibrant used car industry.

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.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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