New Delhi: Understanding the Impact of GST on Car Sale Margins

The government has clarified that a Goods and Services Tax (GST) of 18% will now be applicable on the margin of sale for vehicles, a change that affects registered businesses involved in the sale and purchase of cars. This means that if a vehicle is purchased for, say, Rs 8 lakh and sold for Rs 10 lakh, the GST liability would be Rs 36,000.

Previously, GST was applicable on used cars, but the rate has been increased from 12% to 18% for electric vehicles, aligning them with petrol and diesel vehicles. According to a source, "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 - the difference between consideration received for the supply of such goods and the depreciated value of such goods on the date of supply." If the margin is negative, no GST is payable.

For example, if a car was purchased for Rs 20 lakh with depreciation of Rs 8 lakh claimed, resulting in a depreciated value of Rs 12 lakh, selling it for Rs 10 lakh would result in a negative margin, hence no GST. However, selling the same car for Rs 14 lakh would levy an 18% tax on the Rs 2 lakh margin, resulting in Rs 36,000 GST.