New Delhi: The GST Council on Saturday cleared an 18 per cent GST tax rate on the purchase of used vehicles from 12 per cent earlier. This move had led to a backlash among car buyers as well as industry participants. Moreover, there was uncertainty around how individual car sellers will sell their cars after the rollout of higher GST rates on old vehicle sales.
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Finance ministry clarifies higher GST on old vehicle sales
The finance ministry has clarified that the updated tax slab only applies to authorised dealers who sell used cars including electric vehicles (EVs). However, individual sellers selling their personal used vehicle will not have to pay any such tax, it said. Further, GST on old vehicles only applies on the sellers’ margin instead of the total cost of the vehicle.
How does GST on old vehicles sales work
To illustrate how GST on user car sales works, let’s take an example. Let’s say you are the buyer of a Maruti Alto car worth RS 5 lakh. You paid 12 per cent GST on the purchase which paid was in turn by the company to the government. Let’s say it has been 5 years since the purchase and you now plan to own a new vehicle. For this, you sell the vehicle to your friend for Rs 4 lakh. You will not be required to pay any GST in this sale since you are an individual seller, according to government FAQs.
Let’s say you sold this vehicle to an authorised seller for Rs 4 lakh. Again, you are not required to pay any GST on this sale. Now, the authorised seller sold the Alto they purchased from you at RS 4 lakh to another buyer for Rs 4.50 lakh. This sale will invite 18 per cent GST on the Rs 50,000 margin earned by the dealer. This amounts to Rs 9,000 at 18 per cent GST on Rs 50,000.
This explains the govenrment’s stance that GST will not be imposed twice on the same good. The GST will only apply to authorised sellers’ margins on the sale of used cars, according to the FAQs shared by the finance ministry.
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