Applicability of GST on Secondary sale of Automobiles
GST applies to automobiles, including cars. In today’s era, the used car business is growing due to the ease of financing and improved durability of vehicles. Let us shed some light on the applicability of GST (Goods and Service Tax) on the sale of second hand or refurbished cars in India.
Scope of Supply
GST is applicable on all supplies made in the course or furtherance of business, for a consideration. The definition of supply includes all kinds of sale, exchange, transfer, barter, lease, rental, license, and disposal undertaken in the course or furtherance of business for a consideration.
Thus, the two important elements of supply are:
- Consideration: The value of any payment made or to be made by the recipient to the supplier in relation to the supply of goods or services, including both monetary and non-monetary forms.
- Furtherance of Business: Activities undertaken by a business entity to advance or promote its commercial objectives.
As per the above discussion, it is clear that the sale or exchange of cars in the course or furtherance of business is considered a supply under GST.
Valuation of Supply
The main question arises: Is the value of the entire sale considered the value of the supply, or is it the margin earned that constitutes the value of the supply, or is it the purchase consideration?
Under GST, the margin scheme is available for dealers engaged in selling and purchasing used cars. Therefore, GST is applicable only on the differential margin between the sale price and purchase price of second-hand cars as per the scheme. However, if the differential amount is negative, it should be ignored.
It is important to note that all additional expenditures incurred on the car to make it ready for sale should be included in the purchase consideration when calculating the earned margin differential.
Applicable rates of GST on value of Supply
GST is applied to the trade of pre-owned cars in a manner similar to new cars. The GST rate on the sale of used cars depends on the car’s categorization, primarily based on fuel type and engine capacity.
The GST rates on second-hand cars are as follows:
| Type of Car | Engine Capacity | GST Rate | HSN Codes |
| Petrol Car | Up to 1200 CC | 12% | 87 |
| Petrol Car | Over 1200 CC | 18% | 8703 |
| Diesel Car | Up to 1500 CC | 12% | 8703 |
| Diesel Car | Over 1500 CC | 18% | 8703 |
Threshold limit of Registration under GST
According to Rule 32(5) of the GST Act, for used goods, whether as such or after minor processing that does not change the nature of the goods, and where no ITC has been availed on the purchase, the value of supply is the difference between the selling price and the purchase price. If the value of such supply is negative, it shall be ignored.
Conclusion:
Dealers with an aggregate differential margin amount exceeding ₹40 lakh in a financial year are required to get registered under GST Act.
Example:
| Purchase Price | Sale Price | Turnover from Transaction |
| INR 10,00,000 | INR 12,00,000 | INR 2,00,000 |
Note:
The purchase price includes all repairs and overhauling expenses incurred on the car.
