India has a robust automotive industry and in today's world used car market has been growing a lot.

India’s government initiated the Goods and Services Tax (GST) to create a uniform tax structure. In 2017 when the GST bill came into action, the levied various direct and indirect taxes were aggregated to a single tax system.

With the implementation of the GST, there was confusion in the car market too. The market went through many disruptions that affected the suppliers, manufacturers, and even the buyer. Though this was happy news for the new car market, the used car market has to face some challenges.

When GST was not applicable, the used car dealers used to pay five per cent VAT (Value Added Tax) on a sold car. But now, with the 'one country one tax', a 28 per cent tax would be levied on the same used car. Car manufacturers offer many free services due to the increase in competition. These free services are taxed under GST.

In India, GST rates apply to a car based on its classification and type.

A car like Hyundai Grand i10 and Maruti Suzuki Swift has a tax equal to 18%, which was 28% earlier.

The mid-size cars such as Tata Nexon and Honda Amaze pay a tax of 18%.

Luxury cars such as Lamborghini have to pay a tax equal to 28%.

GST has been beneficial for the consumer, dealer, as well as manufacturer. The impact of GST on used vehicles is given below. Know the GST impact on used cars.

The introduction of GST has reduced the overall cost of manufacturing. Therefore, manufacturers also benefit from one tax system.

The total tax rate levied on vehicles has reduced significantly since the implementation of GST. The customer has to pay a lower tax rate than he would have had before introducing GST.

With the implementation of GST, dealers and importers can now claim taxes. Hence they benefit a lot as earlier value-added tax (VAT) could not be claimed.

Let us know about the GST impact on car price. Earlier the tax was based on the discounted value of the car.  The market value of the old car was deducted in case of exchange.

The rates of used cars were brought down to boost the used car market. The applicable GST rates applicable currently for used cars are 12% for a smaller vehicle with petrol cars of engine capacity up to 1200cc and diesel cars of engine capacity up to 1500cc. Used cars with engine capacity exceeding 1200cc for petrol and 1500cc for diesel cars have a GST of 18%.

GST is levied on any supply of goods and services, but it also has some exceptions. There are some different rules to follow on certain transactions like the trade of used goods or used car GST vehicles. Dealers of used goods have an option to pay taxes on the margin of the transaction. This means the difference between the selling price and the buying price of such goods, and if there is a negative margin, no GST is applicable.

The supply of second-hand cars should be taxable, and the supplier must be a person who deals in buying and selling used cars.  The input tax credit will not be available while purchasing used cars. One has to pay GST if an unregistered person is involved in the dealing of used cars.

We have already seen that the value on which GST is calculated is the margin of supply value. This can be calculated as follows in the case of used vehicles:

If the vehicle is handed over by the Central Government, State Government, Union territory, or a local authority, the person receiving the vehicle has to pay the tax.

There may also be a situation where a business person may be using the vehicle for business purposes. If the aggregate turnover is less than the threshold exemption limit of 40 lakhs and 10 lakhs, they may not obtain the GST registration. One must consider whether the turnover of the old car exceeds the threshold exemption limit. If the turnover exceeds, then no GST would be payable.  It is essential to ensure the details to continue to benefit us.

GST has reduced the cost and proved beneficial for both the cars’ manufacturers and their customers. If India keeps the Goods and services tax system going, it will establish a boon system to boost the automobile industry’s growth rate.

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