The Goods and Services Tax (GST) plays a vital role in determining the overall cost of purchasing a second-hand vehicle in India. While GST on new cars is levied on the entire transaction value, the government has introduced a margin scheme for pre-owned cars to make used vehicles more affordable. This article explains the latest GST rules (effective January 2025), tax rates, margin calculations, and examples to help buyers and dealers understand the process clearly.
GST on Second Hand Cars: Dealer Sales
When a GST-registered dealer sells a second-hand car, GST is charged only on the profit margin, not on the total sale value. This is called the margin scheme. The applicable GST rate is a uniform 18% for all types of used cars, including electric vehicles (EVs).
- Margin = Selling Price – Purchase Price
- GST is charged only if the dealer makes a profit.
- No GST if the car is sold at a loss.
- No Input Tax Credit (ITC) can be claimed by the dealer under this scheme.
| Particulars | Example 1 | Example 2 |
|---|---|---|
| Buying Price | ₹8,00,000 | ₹4,00,000 |
| Selling Price | ₹10,00,000 | ₹5,00,000 |
| Profit Margin | ₹2,00,000 | ₹1,00,000 |
| GST Rate | 18% | 18% |
| GST Payable | ₹36,000 | ₹18,000 |
GST on Sales by Private Individuals
If one private individual sells a car to another (for personal use), the transaction is not treated as a business activity. Hence, no GST is applicable. This makes private resale transactions tax-free under GST law.
GST on Sales by Companies
When a company sells a used car that was earlier used for business purposes, GST may apply:
- If the company claimed ITC when purchasing the car → GST will be charged on the entire sale value.
- If the company did not claim ITC → GST will be charged only on the profit margin at 18%.
Key Takeaways
- Uniform 18% GST rate on second-hand vehicles (dealers & companies under margin scheme).
- No GST on car sales between private individuals.
- No GST if the dealer makes a loss.
- Dealers cannot claim Input Tax Credit (ITC) under the margin scheme.
FAQs on GST for Second Hand Cars
1. Is GST applicable on second hand cars in India?
Yes, GST applies when second hand cars are sold by GST-registered dealers or companies. The applicable GST rate is 18% under the margin scheme. However, no GST is applicable when a private individual sells a car to another individual.
2. How is GST calculated on used cars under the margin scheme?
GST is calculated only on the profit margin (selling price – purchase price). For example, if a dealer buys a car for ₹4,00,000 and sells it for ₹5,00,000, the margin is ₹1,00,000 and GST payable is ₹18,000.
3. Do private car sales attract GST?
No, GST is not applicable to car sales between private individuals as it is not considered a business transaction.
4. Can dealers claim Input Tax Credit (ITC) on second hand cars?
No, under the margin scheme, dealers cannot claim ITC on second hand cars. If they claim ITC, then GST will have to be paid on the full sale value instead of just the margin.
5. What is the GST rate on company-owned cars being sold?
If a company had claimed ITC when purchasing the car, GST will be charged on the full sale value. If no ITC was claimed, GST will be charged only on the profit margin at 18%.
