GST on sale of second hand motor car


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


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:

  1. 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.

  1. 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.