GST on sale of second hand motor car
After the implementation of GST sale of used and old vehicles were taxed at the
same rate as applicable on new vehicles which was 28% + Applicable cess which
was up to 15%, and due to this effective tax on sale of old vehicles was upto 43%.
This higher rate of tax was causing the burden on trade and industry and due to
this there was slow down in the used vehicle market.
There are various provisions under GST related to the Sale of Second hand Motor
Car.
If you have claimed input credit when you purchased the car, either
CENVAT or input GST, then you need to pay GST on the sale price of the car as per
applicable rate.
Whereas, if the transfer is made to a related person than as per the definition
of related persons given in CGST Act – Refer Explanation to Section 15 of the
CGST Act . In such case the GST will be applicable on the value determined under
Rule 28 under Determination of Value of supply which will be market value.
This is applicable irrespective of the fact that it is actually sold for lesser value.
If input credit is not claimed at the time of purchase of car then we can apply the
provisions of Notification 8/2018 – Central Tax (Rate) dated 25th January 2018.
According to this Notification (Explanation i) if depreciation is claimed on the
vehicle as per section 32 of the Income Tax Act then GST will be paid on the
difference between selling price and the depreciated value . Negative value is to
be ignored.
For eg. If the Purchase price of a car in pre-GST period was Rs. 5 Lakhs and input
tax credit on the same as per CENVAT Credit Rules 2004 was claimed. Its written
down value is now Rs. 1,50,000 as per income tax calculation and Rs. 1,80,000 as
per books. Its market value is Rs. 2,00,000.
Than if the Motor car is sold for Rs. 2,00,000, GST will be paid only on Rs. 50,000;
(i.e. on 2,00,000-1,50,000). When it is sold below Rs. 1,50,000 , no GST will be
attracted. It is important to note that written down value as per books of
accounts has no relevance unless it is same as per income tax act.
Valuation of Old or Used car for GST Calculation
Value on which GST at above rates to be calculated shall be Margin of Supply
which is to be calculated in the manner as mentioned in Notification which is
given below:
- In Case Depreciation under Income Tax Act Availed: Margin of supply shall be
difference between Sale consideration and Written down Value and tax to be
calculated on such Margin, and where the margin of such supply is negative, it
shall be ignored.
- In other cases: Margin of Supply shall be difference between sale price and
purchase price Tax to be calculated on such Margin, and where the margin of
such supply is negative, it shall be ignored;
When the businessman has more than one car purchased at different times and
some of them sold at different times, it is difficult to find written down value of a
particular vehicle as it loses its individual identity due to Block of Asset Concept.
Hence, this would require further clarification to this extent.
