GST Liability on sale of old Cars

Sale of old and used motor vehicles / cars is very common transaction undertaken by persons who are registered under GST law as well as individuals who are not engaged in any business, but sell their old car in order to purchase a new car or due to other reasons. In this article we shall deliberate upon the GST treatment on sale of old and used motor vehicles / cars under various situations.

GST Liability on sale of old and used vehicles by a GST registered person

In cases where sale of old motor vehicles is made by a GST registered person, without doubt such a supply will be taxable under GST Law and such a person needs to pay GST at applicable rates.

Rate of GST applicable on sale of old and used vehicles

According to Notification No. 8/2018 Central Tax (Rate) dated 25-01-2018 (and similar notifications under other GST Act(s)), the government has reduced the GST rate on old and used vehicles in situations where the input tax credit / CENVAT credit has not been claimed in relation to motor vehicles. The GST rate in such situations is as follows:

1. GST @ 18% (CGST + SGST or IGST) on Old and used, petrol Liquefied petroleum gases (LPG) or compressed natural gas (CNG) driven motor vehicles of engine capacity of 1200 cc or more and of length of 4000 mm or more.

2. GST @ 18% (CGST + SGST or IGST) on Old and used, diesel driven motor vehicles of engine capacity of 1500 cc or more and of length of 4000 mm

3. GST @ 18% (CGST + SGST or IGST) on Old and used motor vehicles of engine capacity exceeding 1500 cc, popularly known as Sports Utility Vehicles (SUVs) including utility vehicles.

Note: SUV includes a motor vehicle of length exceeding 4000 mm and having ground clearance of 170 mm. and above.

4. GST @12% (CGST + SGST or IGST) on All Old and used Vehicles other than those mentioned from S. No. 1 to No.3

Note: Government also exempted the Cess applicable on sale of Used vehicle where input tax credit / Cenvat Credit has not been availed, vide  Notification No. 1/2018 Compensation Cess (Rate) dated 25-01-2018.

It may be noted here that input tax credit on motor vehicles / Cars is generally blocked under Section 17(5)(a) of the CGST Act, 2017 and is available when such motor vehicle is used for further supply, transportation of passengers and imparting training of driving of such vehicles.

As in majority of cases ITC is blocked for motor vehicles and thus no question of it being availed. Thus, the above reduced GST rates and NIL cess rate would be applicable on sale of old vehicles.

However in case a person was eligible to avail and has in fact availed input tax credit on motor vehicle which he is now selling, normal GST rate of 18% (if supplier did not claim ITC) and 28% (if supplier claims ITC) plus 20% / 22% towards Compensation Cess, as applicable need to be charged and paid on sale of such motor vehicle (having engine capacity > 1500cc) . Electric vehicles are subject to GST rate of 5% with no GST Compensation Cess and other vehicles are subject to 18% GST and GST Compensation Cess @ 1% / 3%.

How to determine taxable value of supply of goods

GST being an ad valorem tax, in cases where GST is applicable on supply of old vehicles, we need to determine the value of supply, on which applicable GST rate as stated in preceding para shall be applied to find out the GST payable.

As per Notification No. 8/2018 Central Tax (Rate) dated 25.01.2018 the concessional GST rates as discussed by us above will be applied on the “Margin of the Supplier” (in cases where ITC has not been availed on purchase of motor vehicle) which is to be calculated in the manner as mentioned in said Notification as given below:

1. In Case Depreciation under Income Tax Act Availed: Margin of the supplier shall be difference between Sale consideration and depreciated value of such vehicles on date of sale and where the margin of such supply is negative, it shall be ignored.

It may be noted here that the depreciated value here means as per the Income Tax Act. Further income tax law requires computation of depreciation on block of assets, but for the purpose of computation of margin as above, the depreciated value should be determined for the specific vehicle which is being sold.

2. In other cases: Margin of Supplier shall be difference between selling price and the purchase price where the margin of such supply is negative, it shall be ignored.

Payment of tax under reverse charge on purchase of used motor vehicle by a registered person from Government

As per Notification No. 4/2017-CT (Rate) dated 28-6-2017 amended vide Notification No. 36/2017-Central Tax (Rate), dated 13-10-2017, w.e.f. 13-10-2017 in case of used vehicles, supplied by Central Government, State Government, Union territory or a local authority, the registered person receiving the supply is liable to pay tax under reverse charge.

In case of sale of used vehicles supplied by Government to unregistered person, respective department of Central Government, State Government, Union territory or a local authority should obtain GST registration and pay GST (forward charge mechanism) as per CBI&C circular No. 76/50/2018-GST dated 31-12-2018.