21 Dec, 2024
A lot of confusion has been made between the sellers and buyers while selling used car transactions in India about whether Goods and Services Tax applies or not. Be you a corporate that is selling its used car or a normal person who is selling used vehicle to a company; you should know how the GST has to be affected in case of selling of used cars. In this article, we shall clear whether GST applies when a firm sells a second-hand car and how it impacts the buyers and sellers.
GST is a tax on sale of goods and services. In India, the company needs to sell used cars according to the existing rules in the GST regime. Yet, all sold used cars do not attract the same kind of GST charge as a new car sells. Now, let us see how GST applies when a company decides to sell used cars.
Tax Exemption on Used Cars.
Under the provisions of the GST law, in the case of an individual who sells his used cars to other people, the liability for charging GST is not incurred as such. However, for a company, selling and buying used cars falls well within its business transactions, although the GST liability can accrue under certain circumstances.
• Input Tax Credit (ITC): GST-registered companies can claim Input Tax Credit (ITC) on the GST that is paid while purchasing used cars. When these companies sell the cars, they charge GST on the sale value.
• Between Registered Dealers: If a company sells used cars to a GST-registered buyer, GST will be applicable, but at a different rate depending on the condition of the vehicle.
GST Rate on Old Cars
The GST rate on old cars is always less than the GST rate on new cars. If a company sells an old car, then the GST rate may differ depending upon whether the car is sold under the
GST scheme or as a second-hand sale. The following are general rules:
• 12% GST on Used Cars: For the sale of used cars by a company, GST is usually levied at 12% on the sale amount. This is applicable when the company is selling the car as part of its business activity. The GST rate for used cars is lesser than the GST rate for new vehicles, which is 28%.
• Sales Without ITC: If a company is selling the used car with no benefit of claiming ITC, GST can be claimed on the sale price of the car without including any ITC. In these cases, the company will charge 12% GST on the sale of the used car.
Car dealerships also sell used cars. In the case of a used car dealership, the GST rate on used cars is the same as for the companies – 12%. Such dealerships are mostly registered under GST. The dealerships can collect GST on the used cars sold to the buyer; however, they must ensure the following:
• The used car is sold after due inspection.
• The vehicle has been refurbished, if required, and is in a saleable condition.
In this situation, the used car dealer will also issue a valid tax invoice that includes the 12% GST applicable to the sale of the used car.
Tax Treatment for Buyers
For buyers purchasing used cars from a company or a registered dealership, the GST will be added to the sale price. Consequently:
• No Input Tax Credit: The buyer is not able to claim Input Tax Credit (ITC) for the GST paid on the used car purchase. The reason is that the car sold is not a new good and does not have input costs for its purchase.
• GST on Sale Price: The total price of the used car includes the GST, so it's important for buyers to be aware of the final price they'll be paying.
If a private individual sells a used car to a buyer, generally GST is not applicable. In such transactions, there is no obligation on the part of the seller to charge GST on the sale consideration. However, in case of a company selling a used car, GST is applicable as it falls under the category of transactions and the company is registered under GST laws.
In conclusion, GST is levied on the sale of a used car by a firm under the current laws of India. The rate of applicable GST is generally 12% on the sale amount of the used car. This is in accordance with the tax treatment provided to vehicles sold as part and parcel of a company's business activity. However, the terms of transaction must be well known to both buyers and sellers in order to ensure compliance with the GST laws.
You may be a seller of second-hand cars or a buyer who wishes to purchase second-hand cars. In case you are a seller, ensure the sale is recorded and proper GST is applied. Similarly, if you are a buyer, you must pay GST on the used car sold to you. However, you will not be allowed to claim ITC.
This would, however help the businesses as well as individual customers understand the aspects of used car sales better so they could better deal with GST complexity.
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