Levy of GST On Old / Used Vehicles

Summary: In its 55th meeting, the GST Council approved a tax rate increase on old and used vehicles from 12% to a uniform 18%, effective January 16, 2025. This includes two-wheelers, three-wheelers, small cars, and electric vehicles (EVs). Vehicles already taxed at 18%, such as petrol cars with engine capacity above 1200cc and length over 4000mm, and diesel cars above 1500cc and the same length, remain unaffected. The hike applies only to registered taxpayers engaged in buying and selling used vehicles and is levied on the margin value (difference between purchase and selling price). Personal transactions and sales by unregistered individuals are exempt. While the change simplifies the tax structure, it will increase costs for buyers as the tax is passed on to the final price. Depreciation is considered when calculating the taxable margin, ensuring fairness. Rule 32(5) of CGST Rules governs valuation, and the amended Notification No. 4/2025-CT (Rate) implements this change.

The GST Council in its 55th meeting held on 21st December, 2024, approved the increase in tax rate from 12% to 18% (in real terms, a 50% hike) on supply of second hand or old or used vehicles. The recommendation states that all vehicles may now include two-wheelers, three-wheelers, small cars etc. The rate was already 18% for sale of old and used petrol vehicles of engine capacity of 1200 cc or more & of length of 4000 mm or more, diesel vehicles of engine capacity of 1500 cc or more & of length of 4000 mm and SUVs. Thus, GST shall now be @ 18% uniform rate on old vehicles w.e.f. 16.01.2025. However, this rate hike will only apply to supply of such vehicles by registered tax payers in ordinary course of business and not by unregistered taxpayers.

The GST Council has only simplified the tax structure and proposed a single rate of GST @ 18% on supply / sale of all old and used vehicles including electronic vehicles (EV’s). This is not a new tax levy. These vehicles would be small car models comprising about 50 percent of used car market.  This will also cover electric vehicles (EVs).

The Council’s recommendations as per PIB release dated 21.12.2024 are:

• Rate of GST shall be increased from present 12% to 18% on sale all used and old vehicles including electronic vehicles (EVs)
• This increase will exclude specified vehicles already being taxed old / used @ 18%, i.e., sale of old and used petrol vehicles of engine capacity of 1200 cc or more & of length of 4000 mm or more; diesel vehicles of engine capacity of 1500 cc or more & of length of 4000 mm and SUVs.
• EV’s shall be taxed @ 18% where as new EV’s are taxed at a lower rate.
• GST shall not be applicable on the value of supply but only on the positive margin amount i.e., difference between purchase and selling amount.
• GST is applicable only on the value that represents Margin of the Supplier, that is, the difference between the Purchase price and selling price (depreciated value if depreciation is claimed) and not on the value of the vehicle. Also, it is not applicable in case of unregistered persons.

 Changes at a Glance

Relevant Valuation Rule

Rule 32(5) of CGST Rules, 2017 already provides that where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

GST Rates

GST rates are prescribed in Notification No. 1/2017-CT (Rate) dated 28.06.2017. Vide Notification No. 4/2025-CT (Rate) dated 16.01.2025, Notification No. 8 stands amended w.e.f. 16.01.2025 to the effect tax 6% rate in residual entry shall be substituted by 9%.

Thus, GST rate on old and used vehicles taxable at 6% Central Tax (12% total) has been increased to 18% w.e.f. 16.01.2025 implying that GST on all old and used vehicles including EV’s shall now be 18% (9% Central, 9% State).

Impact

While a new car attracts lower GST on total value, used car will now be subject to 18% GST but only on margin or differential value in terms of Rule 32(5). Since the tax burden will be passed on to the ultimate buyer, it will be a cost hike for ultimate buyer. However, the tax would be on the margin amount (difference between buying cost or depreciated value if deprecation is claimed and selling price).