If you are planning to sell your old car then first know when and who will have to pay 18% GST? Know your work immediately

Auto News Desk – There is a lot of uproar on social media regarding GST on the sale of second hand cars. There is a lot of controversy on social media regarding this decision of the Central Government. Let us tell you that recently the GST Council had decided to impose 18 percent GST on the margin of sale of second hand cars. After which Finance Minister Nirmala Sitharaman had explained in detail about this decision in a press conference. However, this decision of the government was not taken well by the people and there was a lot of criticism of this decision on social media. Now an expert has given clarification on this decision. He told who will have to pay GST on selling a second hand car and who will not?

GST will have to be paid only after getting margin
An expert related to this matter clarified that the registered entity will have to pay GST on the sale of the old vehicle to the seller only when there is margin i.e. profit. 'Margin' means the excess of the selling price over the depreciation adjusted cost price of the vehicle.

These people will not have to pay GST
Let us tell you that in its meeting last week, the GST Council has decided to fix a single rate of 18 percent GST on the sale of all old i.e. 'second hand' vehicles including electric vehicles (EV). Earlier different rates were applicable. If a person sells an old car to another person then GST will not be charged on it. An expert associated with the matter said that where the registered entity has claimed depreciation under Section 32 of the Income Tax Act 1961, in such a situation, GST will have to be paid only on the 'margin' value of the supplier. The 'margin' value is the difference between the price received for the supply of such goods and the depreciated value. “Where such ‘margin’ value is negative, no GST will be levied,” he said.

Let us understand the matter with an example
If a registered concern is selling an old or second hand vehicle with a purchase price of Rs 20 lakh for Rs 10 lakh and has claimed depreciation of Rs 8 lakh on it under the Income Tax Act, then it will not have to pay any GST. This is because the selling price of the supplier is Rs 10 lakh and the current price of that vehicle after depreciation is Rs 12 lakh. In this way the seller is not getting any profit on the sale.

If in the above example the price after depreciation remains Rs 12 lakh and the selling price is Rs 15 lakh, then GST at the rate of 18 per cent will have to be paid on the supplier's 'margin' i.e. Rs 3 lakh. In any other case, GST will be levied only on the price which is the supplier's 'margin' i.e. the difference between the selling price and the purchasing price. Then, where such 'margin' is negative, no GST will be charged.

Let us understand the whole matter with another example
If a registered entity is selling an old vehicle to an individual for Rs 10 lakh and the purchase price of the vehicle by the registered entity was Rs 12 lakh, then it is not required to pay any GST as 'margin' because in this case the supplier's 'Margin' is negative. In cases where the purchase price of the vehicle is Rs 20 lakh and the selling price is Rs 22 lakh, 18 per cent GST will have to be paid on the supplier's 'margin' i.e. Rs 2 lakh.

Saurabh Aggarwal, tax partner at EY, said the GST Council has recommended increasing the GST rate on old electric and petrol-diesel powered small cars from 12 percent to 18 percent. It has been brought down to the level of rates prescribed for large cars and SUVs. GST on 'second hand' vehicles will be applicable only on the margin and not on the selling price of the vehicles (income tax less the depreciation cost or purchase price of the vehicle from the selling price). Before the proposed amendment, GST on old electric vehicles was applicable on the entire selling price of the vehicle. Therefore, the proposed change should not be seen as a hindrance to older electric vehicles, Aggarwal said. This is a welcome step as it is likely to reduce the cost of older electric vehicles.