The GST Council recently announced a significant change in the taxation of used cars, raising the Goods and Services Tax (GST) rate from 12% to 18% for vehicles sold by businesses. This move, which includes electric vehicles (EVs), aims to bring a uniform approach to how used vehicles are taxed.
But while the headline increase might sound concerning, individual car owners engaging in private sales can breathe easy. These changes don’t apply to them and here’s why.
GST on used cars explained:
Previously, only certain vehicle categories, like large petrol and diesel cars or SUVs, attracted an 18% tax. Under the new rules, this rate will now apply to all used cars sold by businesses or dealers, including smaller vehicles and EVs.
The tax will be calculated on the margin of the sale—the difference between the vehicle’s purchase and resale price. If depreciation has been claimed, that will also be factored into the margin. This ensures that only the profit earned by the seller is taxed, not the entire sale price.
GST on used cars explained: Impact on EVs
One area of concern is the inclusion of EVs in this new framework. While new EVs enjoy a reduced 5% GST to encourage adoption, the 18% rate on used EVs could make them less attractive in the second-hand market. This could be a roadblock for buyers looking for affordable EVs in the used car market.
Private sellers stay unaffected
If you’re an individual selling your car privately, there’s no need to worry. The GST hike specifically targets vehicles sold by businesses and dealers operating for profit. Private transactions remain GST-free, meaning the change will not impact most personal car sales.
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