Used cars getting costlier with GST riles market expert

The GST Council, chaired by Finance Minister Nirmala Sitharaman, has sanctioned a notable increase in the tax rate for the sale of pre-owned vehicles, including electric cars (EVs). The Goods and Services Tax (GST), which was previously set at 12%, will now be elevated to 18%. This adjustment is intended to standardise the taxation of second-hand vehicles, specifically used cars.

Currently, certain vehicles with specific engine capacities and dimensions are already subject to an 18% GST. This category includes petrol, LPG, and CNG vehicles with engines of 1200 cc or larger and lengths exceeding 4000 mm, as well as diesel vehicles with engines over 1500 cc and SUVs with similar characteristics. The new regulation extends this consistent 18% tax rate to all used vehicles sold by businesses, thereby addressing inconsistencies in the taxation system.

This change impacts various vehicle categories, including those that were previously taxed at 12%, such as used electric vehicles. While new EVs benefit from a reduced GST rate of 5% to encourage their adoption, the increase to 18% for resold EVs may diminish their attractiveness in the second-hand market.

How does the increased GST on used cars affect you?

Under the new rate approved by the finance minister, the GST will apply solely to the profit margin of the seller, which is determined by the difference between the purchase price and the selling price (with depreciation adjustments if necessary). Sales and purchases of used vehicles between private individuals will remain exempt from GST.

Transactions involving the sale and purchase of used cars and other vehicles between individuals will not be impacted by this change. These private sales will continue to be exempt from GST, ensuring that individual car owners are not affected by the increase. The GST Council clarified that this tax hike pertains only to vehicles resold by businesses or dealers operating for profit.

Watch the video featured above, where The Squirrels' Editor Bhupendra Chaubey interviews Vinkesh Gulati, an executive body member and former president of the Federation of Automobile Dealers Associations of India, who explains why the new tax is a bad idea.