Purchase of Vehicle & GST Implications

Purchase of Vehicle & GST Implications

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Purchase of Vehicle & GST Implications
As we know,  GST is applicable on purchase or Sale of Vehicle.
 Since the GST law has came into force various notifications and amendment has been made on issue of old car sale. GST rate which is levied and its ITC provisions depend on what type of passenger vehicle we purchase i.e. 2-Wheeler/4-Wheeler/Bus etc.  Let us discuss this in detail.
 *Taxability on purchase of new Vehicle*
 Purchase of New Car GST @ 28% and cess is charged.
Cess is charged depending on the CC and length of the car. The rate of cess varies from 15% to 22%.
*ITC on new vehicle purchased*
Vehicles are of two types-a) Goods vehicle and b) Passenger vehicle.
If it is Goods vehicle then ITC on purchase of such vehicle can be availed
if it is passenger vehicle such as car is purchased then ITC is not allowed.
However If the business of the taxpayer is of trading of Car or if the cars are given on hire by the taxpayer then he can avail ITC on purchase of vehicles.
 ITC of GST on repairs and maintenance of car is a debatable issue.
*GST on  old Vehicle*
 Department has issued notification for sale of old car on 25th January 2018. As per notification GST is charged on Margin. If car is used for business and depreciation as per Income Tax Act has been provided on the Car purchased, then GST will be calculated on the Margin. Further rate of GST on such sale of old cars is 12% or 18% depending upon the type of car. On sale of old vehicles cess is not levied.
For Example-
1.      If Mr. A has purchased Hyundai i20 for business purpose of Rs. 8 Lakhs in the year 2016-17 and the depreciated value after 2 years of the car is Rs. 5.5 Lakhs and the car is sold for Rs 6.5 Lakhs then GST will be charged on Rs 1 Lakhs (6.50-5.50).
2.      In the above example if the depreciated value of the car is Rs 5.5 Lakhs and it is sold by Mr. A for Rs. 5 Lakhs then no GST will be charged.
3.      If depreciation is not charged on Vehicle then GST will be charged on difference of Sale Price – Cost of Purchase. For Ex- If a taxpayer earning Salary Income has purchased Car for Rs. 8 lakhs and sells it after 2 years at Rs 6 lakhs then no GST will be charged as the sale price is lower than Purchase Cost. Further in the same case if the car is sold for Rs. 8.50 Lakhs then GST will have to be paid on Rs. 50,000/-.
4.      If the taxpayer deals in 2nd Hand vehicles and sells them, then GST will be charged on margin. For e.g. if Maruti alto purchased for Rs. 2 Lakh and sold for 2.25 lakh then GST will have to be paid on Rs. 25000/-.
So , while purchasing passenger vehicle many does not get the credit of GST paid on it. However when we sell the car we have to pay GST on margin. Further everyone should take decision of levying GST according to type of car.

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