The government has clarified that an 18% Goods and Services Tax (GST) will be levied on the sale margin of vehicles sold by registered businesses engaged in the sale and purchase of cars. This margin is defined as the difference between the price at which the business purchased the vehicle and the price at which it was sold.
For example, if a car is bought by a business for ₹8 lakh and sold for ₹10 lakh, the GST liability will be ₹36,000 (18% of ₹2 lakh). While GST has always been applicable on used vehicles, the tax rate for electric vehicles has been increased from 12% to 18%, aligning them with petrol and diesel vehicles.
When depreciation under Section 32 of the Income Tax Act, 1961, is claimed, GST is payable only on the supplier’s margin. If the sale price is lower than the depreciated value of the vehicle, no GST is applicable.
For instance, if a car was purchased for ₹20 lakh and depreciation of ₹8 lakh was claimed, resulting in a depreciated value of ₹12 lakh, and the vehicle is sold for ₹10 lakh, no GST is due. However, if the same car is sold for ₹14 lakh, GST at 18% will be charged on the margin of ₹2 lakh, amounting to ₹36,000.
This policy ensures transparency and aligns GST application across vehicle types while providing clarity on tax liabilities for registered businesses dealing in vehicle sales.
