Registered person will be required to pay GST on the sale of old and used vehicles only if they earn a margin, meaning the selling price exceeds the depreciation-adjusted cost price of the vehicle, sources revealed.
In its meeting last week, the GST Council decided to implement a uniform 18% GST rate on the sale of all old and used vehicles, including electric vehicles (EVs), which were previously subject to different rates. However, GST will not apply if an individual sells an old and used car to another individual.
Sources said 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, that is the difference between consideration received for the supply of such goods and the depreciated value of such goods on the date of supply.
For instance, if a registered person sells an old and used vehicle for Rs 10 lakh, where the original purchase price was Rs 20 lakh and depreciation of Rs 8 lakh was claimed under the Income Tax Act, no GST will be applicable. This is because the margin, or the difference between the selling price (Rs 10 lakh) and the depreciated value (Rs 12 lakh), is negative.
However, if the selling price increases to Rs 15 lakh while the depreciated value remains at Rs 12 lakh, GST will be payable on the supplier's margin of Rs 3 lakh at the rate of 18%.
GST is payable only on the supplier's margin, which is the difference between the selling price and the purchase price. If the margin is negative, no GST is applicable. For example, if a registered person sells a vehicle for Rs 10 lakh, having purchased it for Rs 12 lakh, no GST is required as the margin is negative. However, if the purchase price is Rs 20 lakh and the selling price is Rs 22 lakh, GST of 18% will be payable on the Rs 2 lakh margin.