1. To avoid double taxation on the supply of goods which has already been taxed e. Second hand Goods.

2. GST is calculated on the difference between the value at which the goods are supplied and the price at which the goods are purchased e. profit margin unlike GST charged on the transaction value for the goods in normal condition. If there is no margin, then, no GST would be payable on such transaction.


This scheme is applicable only for the persons who is dealing in buying and selling of second hand goods i.e. used goods sold as such or after minor changes which should not change the nature of the goods.

Valuation of Supply under this Scheme:

1. As per provisions of 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 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.

In short, any supply of second hand goods, where no ITC was claimed on the purchase of such goods and the nature of goods is unchanged, are eligible under the GST Margin Scheme, and the tax on such supplies will be levied only on the difference value. There will be no tax if the margin value is zero or negative.

2. As per proviso to rule 32(5) of the CGST Rules, 2017 in case of the purchase value of goods repossessed from a 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% per quarter or part thereof for every quarter between the date of purchase and the date of disposal by the person making such repossession.

3. In this regard, Notification No. 10/2017-Central Tax (Rate) dated 28thJune 2017 applicable from 01.07.2017 exempts the registered dealers who deals in buying and selling of second hand goods and who pays the central tax on the value of outward supplies of such second hand goods as per Rule 32 (5) of the CGST Rules, 2017, from paying central tax on the intra state supplies of second hand goods received from the unregistered dealers which leviable under section 9 (4) of the CGST Act, 2017.

Example: A company say M/s XYZ Ltd, who deals in buying and selling of second hand cars, purchases a second hand Car (Original price Rs. 3 lakh) for Rs. 2 lakhs from an unregistered person and sells the same after minor furbishing in July, 2017 for Rs. 2,50,000/-. The supply of the car to the company for Rs. 2 lakh shall be exempted and the supply of the same by the company to its customer for Rs. 2.5 lakh shall be taxed and GST shall be levied. The value for GST purpose shall be Rs. 50000/-, i.e. the difference between the selling and the purchase price of the company.

Other Important Points of the Margin Scheme under GST

  • There will be no GST margin scheme tax invoice i.e., the company/person selling the second hand goods cannot issue any tax invoice and the buyer cannot claim ITC on the purchase.
  • No ITC under Margin scheme.
  • If some major changes or upgrades are made in form of repair, reconditioning and refurbishing, the cost of the repairs/changes will also be added to the taxable value of the second hand goods when calculating GST. In short, GST will also be levied on the value of upgrades and modifications made in the second hand item before reselling it.

Notification No. 08/2018 – Central Tax (Rate) dated 25.01.2018

1. For those registered person who has claimed depreciation under section 32 of the Income Tax Act, 1961 the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply shall be considered as margin and where the margin of such supply is negative, it shall be ignored.

In any other case value of margin for the supplier shall be the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.

2. Rate Applicable for second hand Motor Vehicle:

Rate- 18%

  • Petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more.
  • Diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm
  • Motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.

Explanation. – For the purposes of this entry, SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.

Rate- 12%

For all other motor vehicles rate of 12% will be applicable.

3. This notification shall not apply, if the supplier of such goods has availed input tax credit.

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  1. Tabassum Mujawar says:

    can a person who has opted for margin scheme, avail the ITC benefit such as on Bank Charges etc. or in my case, I am purchasing cement for Godown repair so, can I claim ITC?
    Thanks in advance

  2. B C BHAT says:

    Good article & informative.
    Pl clarify whether it is applicable only for used cars or even buying and selling of 2nd hand machinery also like JCB, Bulldozer, Cranes, Laptops, Transformer, Battery also ???
    What will be the tax rate for sale of such 2nd hand goods ???

  3. CA Vidyut Mankodi says:

    Can you please mention the Act provision where it is provided that tax invoice is not required to be issued if Margin Scheme is used. Thanks.

  4. RAJA GHOSH says:

    Indeed a very nice article applicable for those dealing in 2nd Hand Goods.
    But the question is if there is a restriction on the issue of Invoice by the 2nd hand dealer, how could they collect the tax.

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March 2021