The GST application on the sale of old or used vehicles, i.e., second-hand cars, has been a significant topic of discussion since the inception of GST. The GST Authority has been studying and attempting to implement substantial changes in this regard. The GST applicable to the sale of second-hand vehicles was the same rate as that applicable to new cars, which was 28% plus the applicable cess of up to 15%. This would total up to form an effective GST rate of 43%. As a result, a heavy tax burden was imposed on the industry and traders.
By virtue of Notification No. 37/2017, we can say that it is giving significant relief to the assessee, especially to those who are in the business of leasing an old vehicle. With this notification, there was a considerable abatement of the valuation of the leased motor vehicles being provided. This results in a 35% abatement of the value, meaning the GST rate will be applicable only to 65% of the value of consideration. But to be eligible for this abatement, the following conditions shall be satisfied:
- The lessor purchased the Motor Vehicles before July 1, 2017, and resupplied them under the lease before July 1, 2017.
- The supplier of the motor vehicle is a registered person under the GST Act.
- Such a supplier had purchased the Motor Vehicle before July 1,017 a, nd has not availed of the input tax credit of Central Excise Duty, Value Added Tax, or any other taxes paid on such vehicles.
However, the benefits of this notification were available only until July 11, 2020.
A Biggun until July
Later on, a bigger relief on the sale of old and used vehicles was provided vide Notification No. 8/2018, and this reduced the rate of GST on old and used cars, which are as given below:
a) GST of 18%, on (HSN 8703);
– Old and used, using fuel type of Liquefied petroleum gases (LPG) or compressed natural gas (CNG) motor vehicles with the engine having a capacity of 1200 cc or more and of a length of 4000 mm or more,
– Old and used, using the fuel type of diesel, and are motor vehicles with an engine capacity of 1500 cc or more and a length of 4000 mm,
– On Old and used motor vehicles that have an engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs), including utility.
b) GST of 12%, on (HSN 87);
– All Old and used Vehicles other than those mentioned under the rate of GST 18%.
The GST Council also exempted the cess applicable on the sale of such second-hand vehicles.
Valuation of Second-Hand Vehicle for Computation of GST
GST shall be applicable on the margin of supply, which is the value on which the assessee or taxpayer should pay the tax. The manner of computation of the same has been given below:
In the case of Second-Hand Vehicles, for which Depreciation as per the Income Tax Act has been availed:
The margin of supply here shall be the difference between the Sale Consideration earned on the supply of such second-hand vehicle and the Written Down Value or depreciated asset value. In the case that such margin or difference is positive, the GST rate shall be applied accordingly. And if such an amount is negative, then the same shall be ignored.
In Other Cases:
Here, the margin of supply shall be the difference between the selling price and the purchase price. And in case this margin of supply is negative, it shall be ignored.
In case the Government sells the Second-Hand Vehicle:
If the supplier of the second-hand vehicle is the Central Government, the State Government, the Union Territory or the Local Authority, and the recipient is anyone as mentioned below:
– In the case of a Registered person, the registered person will be liable to pay tax under the reverse charge mechanism.
– And in the case of an Unregistered person, the respective department of the Central Government, State Government, Union territory, or local authority will have to obtain GST registration & pay GST as per the provisions applicable.
Summarised Provisions for GST on Sale of Second-Hand Vehicles
| SR. NO. | PARTICULARS | HSN | CRITERIA | VALUATION | APPLICABILITY OF GST |
| 1 | Second-hand vehicle sold prior to 25.01.2018 | 8703 | ITC availed either under the earlier Indirect Tax Laws or the GST Law | Sales Consideration | GST rate shall be for a New Motor Vehicle |
| 2 | Second-hand vehicle sold post 25.01.2018 | 8703 | ITC is not availed either under the earlier Indirect Tax Laws or the GST Law | Margin of Supply | GST rate shall be of 18%/12% as given above. |
| 3 | Second-hand vehicle sold prior to 25.01.2018 | 87 | ITC availed either under the earlier Indirect Tax Laws or the GST Law | Sale Consideration | GST rate shall be for a New Motor Vehicle |
| 4 | Second-hand vehicle sold post 25.01.2018 | 87 | ITC was not availed either under the earlier Indirect Tax Laws or the GST Law | Margin of Supply | GST rate shall be 18%/12% as given above. |
