Easy Guide to Calculate GST on Sale of Second Hand Goods in India

It is easy to calculate GST on second-hand goods sale as in this article we have discussed all the legal and known provision for the sale of second-hand goods under GST. As everyone knows that in the 21st century India has witnessed the rise of the middle class and consumerism in India. From being a mixed economy state and guilty of practising crony capitalism for over five decades, the new India is finally emerging from the shadows of the past. A major driving force behind India’s dive into consumerism in the last few years has been the growing disposable income of the rising Indian Middle Class. E-commerce and E-services have exploded over the last few years. Retail and transport services have had a complete makeover. Millions of Indians shop online every day.

The golden rule of consumer-driven capitalist economy is: “People don’t just need things anymore, they want them”. The public enthusiasm for new products keeps growing. Driven by the same consumer hysteria, there is a large number of passionate Indian Consumers who are passionate about upcoming new cars, mobiles, and technology. Such people can now sell their used products online as well as offline. Websites like eBay and OLX have made a successful business out of it. These bring us the to the burning topic of today i.e Margin Scheme in GST.

GST is a major step forward towards a digitally driven economy. Although still in its infancy, the GST promises structural tax reforms as well as transparent and scalable economic reforms. This article aims to explain the impact of GST on the growing second-hand goods market in India.

Margin Scheme Under GST for Second Hand Goods

A transaction of supply attracts GST. Second-Hand Goods also fall under the GST ambit. However, GST is levied only on the margin of the sale of the second-hand goods.  when Whenever there is a transaction of supply, you have to pay GST. GST on Margin Scheme (MS) means the difference in value between the selling price and purchase price (i.e. initial purchase cost). No GST will be charged if there is No Margin. Any value added such as repairing cost becomes part of the margin and not the profit. This means that value-added is added to the selling price and not the purchase price. Margin Scheme saves consumers as well as second-hand goods sellers from a trap of double taxation. Margin scheme is for individuals and traders who deal in purchase and sale of second-hand goods. The below point further explain the legal provisions under GST Margin Scheme.

Legal Provisions for Sale Under GST for Second Hand Goods

A) Second-hand Goods bought by a person registered under the GST Margin Scheme

• GST MS registered person are free to purchase goods from the individual or non-registered person. No tax invoice is issued by the seller (i.e. GST is not chargeable on the sale). No input tax is to be claimed by the buyer. It is the sole choice of the buyer to apply the margin scheme or not when he resells the goods.
• A GST MS registered person (let’s say A) buying second-hand goods like a motor vehicle from another GST MS registered person(let’s say B) has the choice of applying the margin scheme or not on the further resale of the goods.
  • • No tax invoice is issued by person A but GST is chargeable on the margin.
    • No input tax to be claimed by person B although GST is imposed (but only on the margin)

B) Transaction Involving Margin Scheme (output tax)

The registered seller under the MS while selling second-hand goods to a non-registered individual will issue a normal invoice and account for output tax based on the margin. The output tax is inclusive in the margin. The unregistered buyer, however, has no right to claim the tax as his input tax credit.

C) GST MS Registered Person Using Normal Transactions (Output Tax)

Sale of second-hand goods by a GST MS registered the person to buyers by using normal transaction will be subjected to normal transaction rules under the GTS ambit. Tax invoice has to be issued and output tax is accounted based on the actual sale value.

The Calculation Example of Sale Under GST of Second Hand Goods

Let us suppose there is a company XYZ Ltd. that deals in sales and purchase of second-hand phones. You buy two phones: iPhone 4S and Sony Xperia for Rs 20,000 and Rs. 13000 respectively. Let’s say at the first place XYZ had bought it for Rs 20,000 and Rs. 10,000 respectively. Hence XYZ is exempted from any GST for iPhone 4S as no profit was made on the sale. However, for the sale of Sony Xperia, XYZ will have to pay GST on the margin of Rs. 3,000/- (Rs 13,000 – Rs. 10,000) at applicable rates.

Exemption

A registered person under the Margin Scheme who pays taxes on the value of outward supply of such second-hand goods is exempted from making Intra-State supplies of second-hand goods by the Notification No. 10/2017-Central Tax (Rate) New Delhi (dated 28th June 2017).

Conclusion: GST and GSTN promise to be the backbone of the future Indian Digital Economy. The Margin Scheme under GST will not only be a boost for the upbeat and till now unregulated second-hand goods market. Margin scheme not only will help to increase tax compliance but also banish the impact of double taxation.