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.
