The 18 percent Goods and Services Tax (GST) on the sale of old cars has recently caught public attention.
It has left many potential car sellers confused about how the tax will impact them.
18 percent GST payable only on margins
The 18 percent GST is applicable only on the margin which is the difference between the purchase price and the resale price of the vehicle.
This will ensure that the tax is levied only on the profit made by sellers and not on the entire resale amount.
For example, if a car was purchased for Rs 14 lakh and sold for Rs 11 lakh, the margin is negative, and no GST would be payable. However, if the selling price exceeds the purchased price, GST will be applied to the positive margin.
When does GST apply?
The GST is applicable when the selling price is more than the depreciated value.
If the seller does not claim depreciation under Section 32 of the Income Tax Act 1961, GST is appliable on the difference of selling price and the purchase price.
Examples to clarify
- Scenario 1: A car was originally purchased for Rs 20 lakh and is sold for Rs 10 lakh. If the depreciation claimed is Rs 8 lakh, the depreciated value is Rs 12 lakh. Since the selling price (Rs 10 lakh) is lower than the depreciated value (Rs 12 lakh), the margin is negative, and no GST is payable.
- Scenario 2: If the same car is sold for Rs 15 lakh instead, the margin becomes Rs 3 lakh (Rs 15 lakh – Rs 12 lakh). In this case, 18 percent GST will be applied to the Rs 3 lakh margin.
