The Indian government has clarified that the Goods and Services Tax (GST) on used cars will be paid only on the margins made by dealers. There will be no incidence of GST on deals between individuals, as it is assumed that the taxes have already been paid at the time of buying a new car and charging GST on a further sale would amount to double taxation.
Therefore, the biggest impact would be on the organised used car sector – branded used car dealerships would be the most affected.
GST is charged at the same rate it is charged on new cars, but on the dealer’s margins only, ranging from 28 per cent for a small car up to 43 per cent for an SUV.
GST Impact on Buying a Used Car
If you are in the market for a used car and are sifting through used car dealerships, you will find that prices have increased post the roll-out of GST. Earlier, used car dealers only had to fork out VAT of 5 per cent on the sales they made. Now they will have to pay GST at the rate of 28 per cent to 43 per cent on their margins depending on the vehicle.
Obviously, this difference will be borne by the buyer. Dealers usually try and keep their margins between 10 to 20 percent, depending on the type of car, age and demand. So, on the sale of a small car at Rs 2 lakh, where the dealer is making about Rs 20,000 as his profit margin, he will have to pay about Rs 5,600 more – which will be added to the price of the car.
Also read: Automobile Dealers Stare At Loss In Crores In Wake Of GST Rollout
GST Impact on Selling a Used Car
If you are planning to sell your used car, expect to find organised used car dealer networks offering you lower prices than you would expect for it. This is because dealers expect to mop up the tax burden from either side – seller or buyer, or both. So if you were expecting to get Rs 1.8 lakh for your car, the dealer is going to haggle with you to cover his tax incidence on the likely profit he will make from the deal.
The advantage of selling to a dealer is that all the transfer-of-ownership paperwork is usually taken care of. However, with the likely lower prices that a dealer will offer for your car, it might make sense to directly sell it to an individual buyer – as GST does not apply in such cases.
Overall, there is not much that will be gained by way of GST in used car deals. A large number of such deals happen through cash transactions that are not billed or if they are, they are highly under invoiced. Either way, it is the buyer or seller who would be impacted the most as dealers will drive hard bargains to keep their margins intact.