Margin Scheme in GST
(Updated as on November 2022)
Introduction / Background:
Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods, a person dealing in such goods may be allowed to pay tax on the margin i.e. the difference between the value at which the goods are supplied and the price at which the goods are purchased. If there is no margin, no GST is charged for such supply.
The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.
Valuation of Second Hand Goods:
As per Rule 32(5) of the CGST Rules, 2017, 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.
The proviso to the above rule further provides that in case of the purchase value of goods repossessed from an unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by 5 percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.
Exemption to supplies originally purchased from unregistered dealer:
Notification No. 10/2017-Central Tax (Rate) dated 28.06.2017 exempts intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods and who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5) of Rule 32 of the CGST Rules, 2017, from any unregistered supplier, from the whole of the central tax levied under the CGST Act, 2017. Similar exemptions are also there in respective SGST Acts.
For instance, a company say M/s First Source Ltd, which deals in buying and selling of second hand cars, purchases a second hand Maruti Celerio Car of March 2019 make (Original price R 5 Lakh) for R 3 Lakh from an unregistered person and sells the same after minor furbishing in July 2019 for R 3.5 Lakh.
The supply of the car to the company for R 3 Lakh shall be exempted and the supply of the same by the company to its customer for R 3.5 Lakh shall be taxed and GST shall be levied. The value for GST purpose shall be R 50,000/- i.e. the difference between the selling and the purchase price of the company.
In case any other value is added by way of repair, refurbishing, reconditioning etc., the same shall also be added to the value of goods and be part of the margin.
If margin scheme is opted for a transaction of second hand goods, the person selling the car to the company shall not issue any taxable invoice and the company purchasing the car shall not claim any ITC.
GST rate Schedule for Goods in 2017
|1||Registration under GST Law|
|2||Cancellation of Registration in GST|
|3||The Meaning and Scope of Supply|
|4||Composite Supply and Mixed Supply|
|5||Time of Supply in GST|
|6||GST on advances received for future supplies|
|7||Concept of Aggregate Turnover in GST|
|8||Non-resident taxable person in GST|
|9||Casual taxable person in GST|
|10||Input Service Distributor in GST|
|11||Composition Levy Scheme in GST|
|12||Reverse Charge Mechanism in GST|
|13||Tax Invoice and other such instruments in GST|
|14||Accounts and Records in GST|
|15||Credit Note in GST|
|16||Debit Note in GST|
|17||Electronic Cash/Credit Ledgers and Liability Register in GST|
|18||Electronic Way Bill in GST|
|19||Input Tax Credit Mechanism in GST|
|20||Transition Provisions under GST|
|21||Integrated Goods and Services Tax Act|
|22||Compensation cess in GST|
|23||Imports in GST Regime|
|24||Zero Rating of Supplies in GST|
|25||Deemed Exports in GST|
|26||Pure Agent Concept in GST|
|27||Job Work under GST|
|28||Works Contract in GST|
|29||Valuation in GST|
|30||Margin Scheme in GST|
|31||Provisional Assessment in GST|
|32||Returns in GST|
|33||Statement of Outward Supplies (GSTR-1) in GST|
|34||Refunds under GST|
|35||Refund of Integrated Tax paid on account of zero rated supplies|
|36||Refund of unutilised Input Tax Credit (ITC)|
|37||Advance Ruling Mechanism in GST|
|38||Goods Transport Agency in GST|
|39||GST on Charitable and Religious Trusts|
|40||GST on Education Services|
|41||GST on Co-operative Housing Societies|
|42||Online Information Data Base Access and Retrieval (OIDAR) Services in GST|
|44||National Anti-Profiteering Authority in GST|
|45||Benefits of Goods and Services Tax (GST)|
|46||Special Audit in GST|
|47||TDS Mechanism under GST|
|48||TCS Mechanism under GST|
|49||Inspection, Search, Seizure and Arrest|
|50||Appeals and Review Mechanism under GST|
|51||Recovery of Tax|
nice article ..but there is some confusion in the matter..
Does this mean that expenses incurred on repairing the vehicle can be reduced from the gross margin to pay GST? That is if the purchase price is 5.00 lakhs, repair expenses is 0.50 lakh and sale value is Rs.5.80 lakhs, whether GST has to be paid on Re.0.80 lakh or Re.0.30 lakh. Please clarify.
HELLO SIR VERY NICE ARTICLE YOU HAD DRAFTED. I WANT TO KNOW THAT IF ANY CAR DEALER SALE OLD CAR UNDER MARGIN SCHEME THEN IS HE HAS TO PAY COMPANSATION CESS ALSO ALONG WITH 28% GST.