This announcement led to confusion, with many believing sellers would have to pay tax on the loss. This article aims to clarify the misconceptions surrounding the new tax structure.

Who Does This Rule Apply To?

The 18% GST on used cars applies only to GST-registered dealers, which include businesses or platforms like Cars24 and Spinny that buy and sell used cars. For example, if a dealer buys a used car for ₹10 lakh and sells it for ₹12 lakh, the GST will be charged on the ₹2 lakh profit.

Impact on Buyers
For consumers, buying a used car from a GST-registered dealer may result in a slightly higher price due to the 18% GST on the dealer’s profit margin. However, if a car is bought or sold privately (between individuals), this GST does not apply.

Is This a New Tax?
No, this is not a new tax. Previously, some used cars attracted a 12% GST. The current change is an increase to 18% for certain vehicle types such as electric vehicles (EVs), petrol cars with an engine capacity of 1200cc or more, and SUVs.

Does GST Apply to Losses?
No, GST is only applicable on profits. If a used car is sold at a loss, no GST is payable. For instance, if a car was bought for ₹15 lakh, depreciated to ₹12 lakh, and sold for ₹10 lakh, no GST is due as the margin is negative.

A Brief History of Used Car GST Rates
Prior to October 12, 2017, used cars faced a 28% GST+cess, which led to significant pushback from the industry. Later, in January 2018, the tax rate was adjusted to 18% based on vehicle type. The recent change now ensures all used cars sold by GST-registered dealers are uniformly taxed at 18%.

Key Takeaways:
1. 18% GST applies only to GST-registered dealers, not private individuals.
2. GST is levied on profit, not losses.
3. The rate has increased from 12% to 18%.
4. This clarification should help clear up the confusion surrounding the new GST structure on used cars. Share this article to spread the word and help others understand the changes.