With the implementation of GST, tax applicable on sale of old and used vehicles was the same as on new vehicles – 28% + Applicable cess at the rate of 15% – this resulted in a rate of up to 43% being charged on the sale of old vehicles. The used car market was heavily affected with this high rate of tax being charged causing a burden on trade and industries.
However, the government soon revised the rate on which the rate of GST is charged on old and used vehicles in Notification No. 8/2018 – Central Tax. The new rates are as follows:
(i) 18% GST on old and used vehicles drive=n on liquified petroleum gas (LPG) and/or compressed natural gas (CNG), with an engine capacity of 1200cc or more and is of 400mm or more in length.
(ii) 18% GST on old and used motors vehicles with an engine capacity that exceeds 1500cc or more and is of a length of 4000mm.
(iii) 18% GST on old and used motor vehicles that fall under the category of sports utility vehicles (SUVs) and have an engine capacity exceeding 1500cc.
(iiii) 12% GST on all old and utility vehicles other than the ones mentioned above.
The government, in the Notification No. 1/2018 – Compensation Cess Rate, states that it exempts the cess applicable on sale of used and old vehicles.
Concessional rates are, however, not applicable if the input tax credit under GST or Cenvat Credit under the Cenvat Credit Rules or ITC under the State Vat was availed.
If the motor vehicles are purchased prior to 1st July 2017 and Cenvat credit was not availed, the implemented tax rate is 65% of the normal rate. If the vehicle was given on financial lease, the implemented tax rate is 65% of the normal rate, as per Notification No. 37/2017 – Central Tax dated 13th October 2017. The Concessional Cess will also be 65% of the normal rate, as per Notification No. 37/2017 – Concessional Cess dated 13th October 2017.
How to evaluate old or used car for GST Calculation
Value on which GST is to be calculated shall be Margin of Supply which needs to be calculated in the manner which is mentioned in the Notification given below
(i) In Case Depreciation under Income Tax Availed: Difference between sales consideration and written down value shall be the margin of supply and the tax to be calculated on such margin. And if the margin of such supply is negative, it shall be ignored.
According to the Income Tax Act, the computation of depreciation on the asset block is required for income tax, however, the purpose of GST is needed to be applied for the specific motor vehicle.
(ii) In other cases: The difference between the sale price and purchase price shall be the Margin of Supply and tax needs to be calculated on such a margin. It is needed to be ignored if the margin of supply is negative. The negative value in valuation, are required not to be considered as exempt non-GST supply, therefore, there is no reversal of ITC under CGST Rules 2017 Rule 42 and 43.
Rule 32(5) of CGST Rules 2017 gives special valuation in case of buying and selling of used and old motor vehicles. Such supply of goods as such or after minor processing that does not change the nature of goods. In the case when input tax credit has not been availed on the purchase of such goods, then the GST needs to be paid only on the differential amount between the purchasing and selling price.
In case of used and old vehicle being sold by the central government, state government, a union territory or the local authority, the registered person who is receiving the vehicle/vehicles is liable to pay tax under reverse charge, as per Notification No 4/2017 – Central tax dated 28th June 2017 amended w.e.f 13th October 2017.
If the sale of used and old vehicles is supplied by government to an unregistered person, respective departments of central government, a state government, a union territory or a local authority, then the recipient should obtain GST registration and pay GST, as per Para 1 of CBI&C No. 76/50/2018 – GST dated 31st December 2018.