Introduction:
Since implementation of GST, there were confusion regarding rate of GST applicable on supply of motor vehicles. In this article, the GST implications on supply of old/used vehicles including following aspects have been discussed:
1) General classification
2) GST rate changes (including abatement) and value
3) Special valuation
4) Illustrations
5) FAQs
6) Upcoming/ related GST updates
General Classification of Motor Vehicle
| HSN | Description | Examples |
| 8702 | Motor vehicles for the transport of ten or more persons, including the driver | Passenger Bus, Tempo travellers |
| 8703 | Motor cars and other motor vehicles principally designed for the transport of persons (other than those of heading 8702 | Diesel and Petrol Cars, Electric cars, Ambulance, Three wheeled motor vehicles |
| 8704 | Motor vehicles for the transport of goods [other than Refrigerated motor vehicles] | Lorries, Goods carrier |
Changes of GST rate on old vehicles over a period of time
From 13th October 2017 to 24th January 2018, abatement in rate of tax
In terms of notification no. 37/2017 Central Tax (Rate) & no.38/2017 – Integrated Tax (Rate) & 07/2017 Compensation cess (Rate) dated 13/10/2017, the goods falling under chapter 87 were eligible for supply by discharging GST at 65% of applicable rate. 35% was abated. Such abatement till 24th January taxable value was allowed subject to following conditions:
a) The supplier of Motor Vehicle is a registered person.
b) Such supplier had purchased the Motor Vehicle prior to 1st July 2017 and has not availed credit of central excise duty, Value Added Tax or any other taxes paid on such vehicles.
On satisfaction of above-mentioned conditions, a registered person dealing in second hand sale of motor vehicle (which is falling under chapter 87) was eligible to claim the abatement of 35% of value of taxable supplies and pay GST on only 65% of value of supply of such motor vehicle.
After 25th January 2018
GST rate on supply of old /used vehicles was same as applicable on supply of new vehicles till 25th January 2018. The GST rates applicable till 25th January 2018 and thereafter provided below for easy reference:
| Category of vehicle (Based on notification no.01/2017 & 08/2018) – CT (R) | GST rate up to 25/01/2018 | GST rate from 25/01/2018 (with conditions) |
| Petrol Vehicles with more than 1200cc engine capacity & 4000mm length (HSN 8703) | 28% | 18% |
| Diesel Vehicles with more than 1500cc engine capacity & 4000mm length (HSN 8703) | 28% | 18% |
| SUVs (including utility vehicles) with more than 1500cc engine capacity (HSN 8703) | 28% | 18% |
| Vehicles other than those mentioned above, including other vehicles under chapter 87 | 28%/18%/12%* | 12% |
* – Various types of motor vehicles covered under Chapter 87, which have varied rates.
The concessional GST rate is to be applied only on the positive margin subject fulfilment of following conditions:
a. Where depreciation claimed under Income tax, margin to be calculated as consideration received less depreciated value of goods as on date of supply. Here, it is important to note, that although income tax requires computation of depreciation on the asset block, the rate is required to be applied for the specific motor vehicle, upto the date the supply.
b. In other cases, the value for GST payment would be difference between the selling price and the purchase price and where such margin is negative, the same to be ignored.
c. The credits under GST or erstwhile laws such as VAT / VAT should not have been claimed earlier.
The ITC on purchase of motor vehicles is generally restricted under Section 17(5) of CGST Act 2017 except when used for certain categories of supplies. This reduction in rate of tax and its applicability only when there is a profit margin provides relief to regular registered persons who sell old used vehicles occasionally. It is important note that depreciation to be considered is under Section 32 of Income tax Act and not under any other laws. There could be instances wherein the GST payment could have been missed out. In such cases, the GST rate and valuation to be applied as applicable from time to time and the concessional rate discussed above cannot be applied for past transactions.
Changes of GST Cess rate over a period of time
In case of motor vehicles, even the rate of GST compensation cess underwent few changes. Details provided below:
| Compensation Cess – Motor Vehicles (USED/OLD only) | |||||
| SI. No
. |
Based on Notification 1/2017 & 5/2017 &1/2018 – Compensation Cess (Rate) | GST% upto 10/9/17 | GST % 11/9/17 – 24/1/18 | GST % from 25/1/18 | Remarks |
| Serial no. 47 & 48 in 01/2017 is substituted for below (only 8703) | |||||
| 1 | Vehicle with both spark-ignition internal combustion reciprocating piston engine and electric motor as motors for propulsion [conditions a) Ambulance b) Three wheeled vehicle c) vehicle engine capacity <1200cc &<4000mm] | NIL | NIL | NIL | Applicable only where ignition + electric MV |
| 2 | Vehicle with both compression -ignition internal combustion piston engine [ diesel-or semi diesel) and electric motor as motors for propulsion [conditions a) Ambulance b) Three wheeled vehicle c) vehicle engine capacity <1200cc &<4000mm] | NIL | NIL | NIL | Applicable only where ignition + electric MV |
| 3 | (d) Motor vehicles other than those mentioned at (a), (b) and (c) above. [Added as per notification no.5/2017 Compensation cess (rate)] | NIL | 15% | NIL | |
| All other rates in notification 01/2017 remain same – GENERAL | |||||
| 4 | Petrol, Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity not exceeding 1200cc and of length not exceeding 4000 mm. | 1% | 1% | NIL | Petrol Vehicles with said parameters |
| 5 | Diesel driven motor vehicles of engine capacity not exceeding 1500 cc and of length not exceeding 4000 mm. | 3% | 3% | NIL | Diesel Vehicles with said parameters
|
| Serial no. 52 in 01/2017 is substituted for below (only 8703): | |||||
| 6 | For other than above vehicles engine capacity not exceeding 1500cc | 15% | 17% | NIL | Generally, Petrol vehicles between 1200 – 1500 cc |
| 7 | Vehicles exceeding 1500cc known as SUVs. Explanation of SUVs – Includes a motor vehicle of length exceeding 4000mm and having ground clearance of 170 mm. and above. |
15% | 22% | NIL | If declared as SUV, also need to check ground clearance |
| 8 | For other than above and not covered under serial no.4 vehicles engine capacity exceeding 1500cc. | 15% | 20% | NIL | Not an SUV but satisfying other criteria |
| Serial 42 & 53 in 1/2017 is substituted for below (other than 8703): | |||||
| 9 | Motor Vehicle covered under HSN 8702 – for transport of 10 or more passengers | 15% | 15% | NIL | |
| 10 | Motorcycles of engine capacity > 350 cc, under HSN 8711 | 3% | 3% | NIL | |
Special valuation for dealers in used vehicles
Rule 32(5) of CGST Rules 2017 provides special valuation in case of persons dealing in buying and selling of used vehicles. Such dealers can supply the goods as such or after minor processing which does not change the nature of such goods. If no input tax credit has been availed on the purchase of such goods, then GST may be paid only on the differential amount between the selling price and the purchase price. If the difference is negative, it is to be ignored for the purpose of valuation of such supply.
Note: Where the value if negative in such valuations, the same need not be considered as exempt/ non-GST supply, and therefore, therefore there is no need of reversal of ITC under Rule 42 or Rule 43 of CGST Rules 2017.
Few illustrations to understand the changes
Mr. Pradeep (car dealer) is into the buying and selling of old and used cars situated in Karnataka. He purchased a petrol car which is having engine capacity of 1498cc and 3998mm for a price of Rs.4,00,000 from an unregistered person who is also located in the same state. After minor changes/additions to the car, Pradeep sold the car for Rs.6, 00,000.
| Sale value | 6,00,000 |
| Purchase value | 4,00,000 |
| Margin | 2,00,000 |
Scenario 1: Sale of old and used car on or before 12/10/2017:
In terms of Rule 32(5) of CGST Rules 2017, GST is to be paid on the Margin i.e. Rs. 2,00,000 + GST at the rate of 45% (i.e. 28% +17%) which amounts to Rs. 90,000 (Rs. 2,00,000*45%).
Scenario 2: Sale of old and used car after 13/10/2017:
In this scenario the assessee has an option to avail the benefit of notification no.37/2017 CT(R) & 38/2017 IT(R) provides an abatement of 35% of taxes, computation is as follows:
| SI.No. | Particulars | Amount |
| A | Taxable value | 6,00,000 |
| B | CGST (A*9.10%) | 54,600 |
| C | SGST (A*9.10%) | 54,600 |
| D | Cess (A*11.05%) | 66,300 |
| Total liability | 1,75,500 | |
(B) CGST rate – 14*65% = 9.1%
(C) SGST rate – 14*65% = 9.1%
(D) Cess rate — 17*65% = 11.05%
He may to opt to pay either Rs.90,000 as in scenario 1 or Rs.1,75,000/-.
Scenario 3: Sale of old and used car combination of Scenario 1 & Scenario 2
On plain reading of Rule 32(5) of CGST Rules along with Notification no. 37/2017 CT (R) & 38/2017 (R), it could have been inferred that both the options could be availed simultaneously by the registered person on sale of old and used cars, i.e. Margin method + 35% abatement to pay tax as below:
| SI.No. | Particulars | Amount |
| A | Margin | 2,00,000 |
| B | CGST (A*9.10%) | 18,200 |
| C | SGST (A*9.10%) | 18,200 |
| D | Cess (A*11.05%) | 22,100 |
| Total Liability | 58,500 | |
However, the author is of the view that the department may dispute this option and this may not be the intention of the law.
Scenario 4: Sale of old and used cars on or after 25/01/2018:
In this scenario, the assesses can avail the benefit of 08/2018 CT(R) and 1/2018 CC(R) the computation as per below which is much beneficial to assesses:
| SI.No. | Particulars | Amount |
| A | Margin | 2,00,000 |
| B | CGST (A*9%) | 18,000 |
| C | SGST (A*9%) | 18,000 |
| D | Cess | NIL |
| Total tax liability | 36,000 | |
The liability has significantly reduced from Rs. 90,000 to Rs. 36,000 from the time when GST was implemented to January 2018.
Few FAQ’s related to supply of old and used cars
1. Can GST be discharged on inclusive basis under margin method?
No, in terms of Rule 32(5) of CGST Rules, GST needs to be charged on margin (i.e. sale price – purchase price). Margin amount cannot be treated as inclusive of GST.
2. Whether services provided by the second-hand car dealer could be considered as intermediary service?
a) In terms of Section 2(13) of IGST Act, “Intermediary” means a broker, an agent or any other person, by whatever name called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more persons, but does not include a person who supplies such goods or services or both or securities on his own account.
b) A second-hand car dealer who is purchasing and selling the goods on his own account would not be considered as intermediary.
c) A person who arranges for second hand car sales between two separate persons, who does not purchase and sell in his own name could be considered to be an intermediary. GST then could be charged as supply of services and not that of goods.
3. In case of sale of luxury cars and motor vehicles, will TCS collected under Income Tax law be included in taxable value?
It has been clarified by the board that such value would not be included as TCS is not a value for goods for payment of GST.
4. Whether dealers can claim ITC on old and used cars purchased?
a) Generally, car dealers work based on margin earned on sale, therefore, they would opt for concessional tax rates and valuation as provided under notification no. 08/2018 CT(R) and similar notifications.
b) If the dealers are not availing any exemption through the notifications, he would require to discharge GST on entire sale value at full tax rate, wherein he can avail the ITC on purchase of old and used car.
5. Whether a car dealer can avail the concessional rate benefit for demo cars?
The demo car is used for the purpose of test drive which may be sold at later date. It could be considered as “used/ old car”. Therefore, the dealer can avail the rate benefits which are applicable for the supply of old and used cars, subject to conditions mentioned therein.
Although, a cost benefit analysis is suggested to be performed, as the input tax credit eligible on purchase and the tax liability upon sale would lead to a beneficial tax position compared to the concessional rate tax structure.
Where the demo car is capitalised, the input tax credit may be disputed u/S 17(5) of CGST Act.
This article has been prepared by Kishore Bandari (Article assistant) and CA Akshay Hiregange. Vetted by CA Mahadev R. The author could be reached at kishore@hiregange.com or akshay@hiregange.com.
(Republished after updation with Amendment since last Publication)
Author Bio
what about the 1000 cc engines of used cars
Lower rate applicable
For Dealers, Positive Margin for the calculation of GST is to be considered car wise or In total ?
E.g. Dealer bought 5 cars at 5 lacs each. Sold 3 cars at 6 lacs each and 2 cars at 4 lacs each…
So total profit is 1 lakh only…so do dealer need to pay GST on 1 lakh or on 3 lakh as Individually on 3 cars, 3 lakhs profit is made.
It must be seen supply wise, i.e.e each car sale, where profit taxable, where loss no GST.
Sir,I want to ask that if a company sells a used Vehicle,so which WDV it should consider for calculating profit .
1.Wdv as per IT
2.Wdv as per books ( as per companies act).
request
WDV as per IT. Another view is to take WDV as on 31/3 of previous FY as after that no value for those goods. But conservatively can do internal computation upto date of supply.
very informative article
we are dealers of used two wheelers,
we are issuing bill of supply on purchase of two wheeler from unregistered persons, we are registered as regular suppliers, is this valuable under law.
Same we are issuing bill of supply on sale of two wheeler to unregistered persons, since we are registered as regular suppliers, is this valuable under law.
if not how sale price and margin amount to be shown in the invoice
how tax amounts to be collected
entering margin amount in the invoice is not a good for us, because our customer will know how margin we make from such sale of two wheeler
Bill of supply is to be raised only for exempt outward supply. Inward i.e. purchase bill of supply is not required. GST would be payable on sale, therefore tax invoice needs to be raised.
If you are following the margin method, then that is the taxable value and therefore, it would be evident on the margin earned. This is an issue where the law is not conducive to business needs and has not yet been addressed by the govt.
We have Bought corolla Altis on Company Name Before GST at cost of Rs 25 Lakhs and We are about to sell a car at the cost of Rs 10 Lakhs , How should we calculate GST payable Please guide
We have a Bought corolla Altis on Company Name Before GST at cost of Rs 25 Lakhs and We are about to sell a car at the cost of Rs 10 Lakhs , How should we calculate GST payable Please guide
I have income from Business and it is taxed on Presumptive basis for professional under section 44ADA. I have registered myself (proprietorship concern) under GST on 1st May 2019. I have purchased a 2nd hand car (1400CC diesel engine) for my personal use in January 2018 for Rs 4 lacs. Now, on 1st Oct 2020, I sold it for Rs 3 Lacs. Querries
1) Whether I will be liable to pay GST on sale of the vehicle, as the vehicle was for my personal asset and not my business asset?
2) The Income was determined on presumptive basis, so for calculating margin whether I have to calculate the depreciation since I started my profession or do I calculate it based on pure sale and purchase value?
3)If applicable, GST rate will be 12%
Sir,
i have purchased a lorry on 01.06.2016 and sold on 31.07.2019 with a profit of 2,00,000. No cenvat credit is availed at the time of purchase. Is GST applicable on it? At what rate?
Sir,
I have purchased a lorry on 01.07.2016 and sold it on 31.07.2019 with a profit of 3 Lakhs. No cenvat credit availed on purchase. Is Gst applicable on it? If yes, what is the GST rate ? On which amount GST is applicable?
Please help.
Thanks in advance.
UNDER HSN CODE 8704 FOR TRANSPORT VEHICAL WDV RS 470639/- SALE PRICE RS. 400000/- GST RATE FOR USED COMMERCIAL VEHICAL UNDER HSN CODE 8704 AND TAX LAIBITITY IN ABOVE CASE
I WHANT TO KNOW ABOUT GST RATE FOR OLD USED VEHICAL UNDER HSN CODE 8704
If total turnover of used car is 60 lakh and margin on which GST is payable is RS. 6 lakh, whether it’s required to take GST registration?
A registered person in business of transport of passenger by road purchased vehicles for use in his business. He avails ITC on such vehicles. Now due to pandemic the vehicles are not used and the same are sold as used vehicles.
1. What will be applicable rate of GST & Cess?
2. Can the Cess ITC be utilised for paying cess on resale?
3. Can Cess ITC be carried forward for utilisation on resale of used cars in future, say after 3 to 5 years?
Thank you.
Dear Sir,
Our company has purchased a Tata Winger 13 seater second hand from unregistered dealer for 3,00,000/-,
So, does RCM is applicable for such purchase or it is exempted from GST?
(a)Sir while calculating th profit on sale of fixed assets
For example sale value is Rs.2000000 Wdv after depreciation is Rs.1600000 profit Rs.400000 that means we need to calculate gst 18% on profit Rs.400000, how to calculate this,
1). 400000*18/100(72000)
2).400000*18/118(61016.94)
What to enter in taxable value in GST
Return
Rs. 400000 or 338983.06(400000-61016.94)
What to enter in tax amount (Rs.72000 or 61016.94)
What amount to show in invoice value in gst return please help with figure value in each coloumn (taxable value, tax value, invoice)
My question is ultimate about gst on profit on sale of asset is calculated on inclusive of gst
(b)For calcuating the profit on sale of assets how to calculate in case of company because company depreciation is as per the shedule II how to calculte in this case
Waiting for your reply
I am planning to buy a second hand passenger car in a NCLT Auction and IRP has mentioned in the clause that “GST as applicable will be over and above the Bid Price.”. This is the first time I am hearing to pay GST above the bid price.
Lets assume if I win the auction and get 2 years old car at approx 4 lacs whose new market price is 7.5 lacs. Do I need to pay GST above the 4 lacs price?
Can you please clarify the same?
Sir, please tell if a second hand card dealer opts for margin scheme the what amount can hi mention on invoice? I mean should he mention full value of second hand car supply or only margin?
For eg margin comes Rs. 2,00,000 and he sold for Rs. 600,000, how he can reflect these amount on invoice.
Sir, I have taken a car on lease from Abc leasing Co. through my Xyz company in which I am currently working on 20 Aug 2017. ABC co. Has claimed input credit and also charging depreciation as per income tax. Now the lease is getting over in Aug 2020. How much GST should I be charged by ABC on my purchase of the car. Considering Rs.3 lakh as the residual value left after the EMI paid in last 3 years. Please share the section/notification for the GST rate suggested.
We are two wheeler dealers. Due to lockdown, we registered bikes in the name of sister concern to sell later as used bikes. Can the sister concern claim ITC? This is around 28% of new vehicle price. The dealer will have to show 28% as outward supply?
Sir,
Its a nice article. I have leased a car (less1200 cc and less than 4000mm length) from my company for 2 years starting September 2018. I am planning to buy the same car after the completion of lease which is RV+GST. As in this case I believe that company could have claimed some depreciation value or something related to company tax. He claims the GST of resale to be 28%. Kindly clarify if my GST comes under 12% or 28 % ? Thanks.
Q a two’ wheeler dealer had stock of scooters on March could not be sold due to lockdown.so all vehicles were registered and caoitalized and no itc claim takenand afterwards sold to sister concern .no tax charged due to margin
scheme.
Now can this other sister concern can claim benefits of margin scheme as sale of used motor vehicle
Pl suggest
Hi
In case a company sells its car to an employee and no VAT/ Excise input is availed at the time of purchase, then how the valuation of car is to be done as per the GST provisions?
Sir,
We are dealers of Passenger Cars. We have the sales of Demo cars. We have already registered the demo Vehicles in our name and, after usage for a period, planning to sell them within state. We purchased these vehicles from other state and availed the IGST input with Cess. We deal with all type Passenger Cars (Fuel and engine Capacity).
Kindly suggest the GST calculation with Example.
Thank You
Sir,
We are in manufacturing industry and we have sold a Innova Car which was used by our Directors. Now what would be GST rate and on what value we have to charge Gst. Do we need to issue invoice for the same? What would be the accounting treatment for the same? Kindly assist.
Car sold for Rs. 770000/-
Car Purchased Price Rs, 1295000/-
Car wdv as on 546000/-
Car depreciation upto the date of sale Rs. 154000/-
Excellent Article. Each aspect and related provisions are very well explained
Yes your interpretation is right. It is “and”, therefore if > 1200 cc & 4000mm in length, then it would cover under 18%. If not satisfying one or the other condition it would attract 12%.
Although, for academic interest, which segment of vehicles/vehicles can fall under this group?
Practically, the vehicle manufacturing industry follows these norms to reduce the cess implication and helps in their tax planning
Petrol Vehicles with more than 1200cc engine capacity & 4000mm length (HSN 8703).
Is it that both the condition of 1200CC and 4000mm length must be fulfill for the old vehicle to be taxed at 18%.
in your example in Scenario 4: the rate of tax should be 12% or 18%
Sir
My company purchased truck in 2016, we claimed depreciation also till selling date i.e. Aug 2019
This truck we sale in Aug 2019
GST Applicable? % ? GST invoice we have to issue ?
Regards
How the margin will be calculated in case of charitable trust?
Because there is no depreciation claim. And if other case is considered, margin value will never be positive.
How to comply in this case?
If the dealer want to sell a new vehicle which is need to be considered as a used car due to physical damage that happened before its delivery. Is the dealer need to treat it as a new vehicle or used one under GST?
How refurbishment done by the dealer is considered. Will it be considered with the total investment of the car?
Hi, for a second hand car dealer, for checking GST registration limit RS 20 lakhs limit should be of sales figure, purchase or difference between the two.
The author has not clarified regarding sale of used car depreciated in business by trader or professional etc