GST on Used Cars / Will I have to pay GST of Rs 90,000 if I sell a car worth Rs 6 lakh for Rs 1 lakh?

GST on Used Cars: After the recent decision of the GST Council, a post is going viral on social media, which talks about imposing 18% GST on the resale of old EV vehicles. The post claimed that if someone bought a car for Rs 6 lakh and sold it for Rs 1 lakh, then 18% tax i.e. Rs 90,000 will have to be paid on the difference of 5 lakhs. This has created confusion among the public. But is it really so? Let's understand this matter in detail.

What is the actual decision?

In the 55th GST Council meeting, it was decided that the GST on the resale of old electric vehicles will be increased from 12% to 18%. However, this tax will be applicable only to those dealers and traders who are in the business of old vehicles. This tax will not be applicable to people selling their cars individually.

Finance Minister Nirmala Sitharaman explained it with an example:

If a dealer buys a car for Rs 9 lakh and sells it for Rs 10 lakh, then tax will be levied only on the profit of Rs 1 lakh.

Personal transactions, such as selling a car between a friend, relative or acquaintance, will not come under the purview of this GST.

Reason for misunderstanding

After the council's announcement, many people misunderstood it and believed that tax would have to be paid even on selling an old car individually.

Some reports and videos in the media further increased this confusion.

In fact, the tax will only apply to the profit margin of traders, not on individual transactions.

Tax on used EV: Who will pay and who will not?

1. Individual Seller:

If you sell your car to a friend, relative, or acquaintance at a loss, then you will not have to pay any tax.

Example:

You bought the car for Rs 18 lakh and sold it for Rs 13 lakh.

GST will not be applicable on this.

2. Dealers and business ventures:

If a dealer buys a car for Rs 13 lakh and sells it for Rs 17 lakh, GST will be applicable only on the profit of Rs 4 lakh.

Impact of this decision on the market

Pressure on dealers:

Tax on dealer's profit may increase the prices of second-hand EV vehicles.

Challenge against new EVs:

While only 5% GST is applicable on new EVs, 18% tax on resale of old EVs will be applicable on profit margins.

Expensive deals for buyers:

Rising prices of second-hand EVs may attract buyers towards new EVs.

Conclusion

The 18% GST on used EV vehicles is applicable only on the profit margin of dealers. This tax is not applicable on people selling vehicles individually. This decision may pose challenges to the second-hand EV market, but individual sellers need not worry.

The government should issue clear guidelines to clear this confusion so that the general public can take decisions based on correct information.