Goods and Services Tax has been implemented in the country since 1st July 2017. Excluding SUVs and large cars, the Indian Automobile industry mostly benefited after the implementation of the tax regime, as there has been a reduction in the prices of new cars across most segments. However, for pre-owned (used) cars, the initial post-GST tax rules created temporary uncertainty before the Government introduced major clarifying reforms, such as the GST Margin Scheme.
In the current GST regime, if dealers don’t make any profit selling a car, they are not required to pay any GST on used cars. GST is charged strictly on the dealer’s profit margin rather than the full car value.
According to tax guidelines, early confusion surrounding whether an individual selling a car to an authorised dealer would attract tax under the Reverse Charge Mechanism (RCM) has been resolved. Under Notification No. 8/2018-Central Tax (Rate), registered dealers buying personal cars from unregistered individual sellers are exempt from paying RCM tax.
Let us understand with an updated example:
A used Hyundai i20 Magna (2009 model, 21,000 km) is purchased by a dealer from an individual for ₹3 lakh and later resold at ₹3.50 lakh (giving the dealer a profit margin of ₹50,000):
- Initial 2017 Rules (Outdated): Tax was calculated on the full ₹3.50 lakh value (28% GST = ₹98,000), making the car price jump to around ₹4 lakh.
- Current Updated GST Rules (Margin Scheme): GST applies only to the ₹50,000 profit margin at a uniform 18% rate.
- Tax Payable: 18% of ₹50,000 = ₹9,000
The same car can now be sold at around ₹3.59 lakh instead of ₹4 lakh.
GST Impact on Buying a Used Car
If you are dealing in the market for a used car and sifting through dealerships, note that buyers are no longer burdened with 28% GST on the vehicle’s entire purchase cost.
Read Also: GST Rates Applicable to Cars and Their Accessories
Under current rules, a flat 18% GST applies only to the dealer’s margin (profit). For example, on a small car where the dealer earns a profit margin of ₹20,000, the applicable GST will be 18% of ₹20,000 (i.e., ₹3,600), which keeps the final price reasonable for the end consumer.
GST Impact on Selling a Used Car
If you plan to sell your personal vehicle, selling to a registered dealer is straightforward. Because the Reverse Charge Mechanism (RCM) is exempt on purchases from unregistered individuals and tax is calculated only on the margin, dealers no longer need to reduce their buying offers drastically to cover heavy tax burdens.
(Note: Direct Person-to-Person sales between two private individuals without a dealer involved remain 100% exempt from GST).
Report On Pre-owned Cars Post GST
While the market faced initial slowdowns due to multiple transitions (Demonetisation, early GST confusion, and BS-IV norms), the introduction of the GST Margin Scheme provided long-term stability. Standardised tax application has allowed the organised pre-owned car sector (such as Mahindra First Choice, Cars24, and Spinny) to grow rapidly, bringing formalisation, compliance, and transparency to the second-hand vehicle market.
Thanks for posting this blog as it is very well researched & informative as well.
Having read and or listened to various opinions, it’s still infancy of what direction may the Nett result of GST increase means to the Yr. end sales figs? At present, it’s still watching and see? My opinion as a car seller is, the show must go on and GST paid, used cars sold, unorganised has an opportunity I to turn organised, hence matter of understanding will prevail / the end has come. Let’s promote an organised platform.
How will be the sale of a used car in the books of the firm taxed when sold to I) another individual or firm ii) used car dealer iii) exchanged for a new car?