18% GST ( Goods and Services Tax ) is raised for business sales on used cars from 12%. This change affects vehicles sold by businesses that claim depreciation and sell on a margin. But, individual buyers and sellers of used cars will still pay 12% GST.
This tax increase is a big deal for the car industry in India. The used car market has been booming lately. Experts like Vikram Chopra, Founder & CEO of CARS24, worry about how this will affect prices and mobility. They say it could make cars less affordable, especially in smaller cities and rural areas.
Key Points –
- The GST rate on used cars has increased from 12% to 18% for business transactions.
- Individual buyers and sellers of used cars will continue to pay a 12% GST rate.
- The tax hike is expected to impact the used car market, potentially slowing growth and affecting businesses relying on second-hand vehicles.
- The increase in GST rate may affect the affordability and accessibility of used cars, particularly in Tier 2/3 cities and rural areas.
- Industry experts are concerned about the implications of this change on the overall used car market in India.
Understanding the New GST Rate Structure for Used Cars
The Goods and Services Tax (GST) has changed a lot for used cars in India. Before, the tax rates depended on the engine size and length of the car. Now, all used cars sold by businesses face a 18% tax, including electric vehicles (EVs).
The #GST Council approves rates reductions on the following four items:
♦️Uncooked, unfried & extruded snack palettes brought down from 18 to 5 %
♦️Fish soluble paste brought down from 18 to 5%
♦️LD slag to be at par with blast furnace slag. It has been changed from 18 to 5%… pic.twitter.com/i5HlXqLEBz— DD News (@DDNewslive) July 11, 2023
Current Tax Rates for Different Vehicle Categories
Now, all used cars fall under the 18% tax rate:
- Petrol, LPG, and CNG vehicles with engine capacities of 1200cc or more
- Diesel vehicles with engine capacities of 1500cc or more
- SUVs with engines exceeding 1500cc
Individual vs Business Transaction Implications
The new 18% GST rate only applies to business sales. If you sell your car personally, you don’t have to pay GST.
Margin-Based Taxation Explained
The GST is now based on the margin value. This is the difference between what you paid for the car and what you sell it for. This way, everyone pays a fair share of tax.
These GST changes will greatly affect the used car market in India. As the industry gets used to these new rules, it’s important for everyone to stay updated and make smart choices.
“The expanded 18% tax rate will also include older electric vehicles (EVs) not previously taxed at 12% when resold by businesses.”
Impact of 18% GST on the Used Car Market
The Indian used car market is growing fast, valued at $34 billion in FY23. It’s expected to reach $73 billion by FY28. But, a recent GST rate increase from 12% to 18% on used vehicles has caused worries.
This new tax only affects businesses, like ride-hailing companies and e-commerce platforms. They use pre-owned cars as assets. The higher tax might make used cars less affordable, especially in Tier 2/3 cities and rural areas.
Experts say this tax hike could slow down the used car market’s growth. Sandeep Aggarwal, Droom’s founder and CEO, believes businesses using second-hand vehicles will be hit the hardest.
The unorganized segment, making up 45-50% of the market, might grow more. This is because buyers and sellers want to avoid the higher tax. This could pose challenges for organized players in the industry.
The used car market’s future will be watched closely. Stakeholders will have to deal with the new tax rules. This will affect the used car industry, market growth, affordability, and business impact.
“The tax hike on second-hand electric vehicles (EVs) raised GST from 12% to 18%, potentially impacting the resale market. New EVs are taxed at a reduced rate of 5% to encourage adoption, whereas used EVs face an 18% GST rate.”
The GST change has also worried the electric vehicle (EV) sector. The resale value of used EVs might drop due to the higher tax. Kia has voiced concerns, saying it could slow down India’s shift to electric cars.
Special Considerations for Electric Vehicles Under New GST Rules
India’s Goods and Services Tax (GST) has changed, affecting electric vehicles (EVs) differently. New EVs get a 5% GST to encourage buying. But, used EVs now face an 18% GST, which might lower demand.
Comparison of New vs Used EV Tax Rates
The tax rate difference between new and used EVs could slow down the shift to electric cars. Kia, a Korean automaker, worries about this. New EVs and two-wheelers get a 5% GST, while used ones get 18%.
Business Operational Costs for EV Dealers
EV dealers now face higher costs due to an 18% GST on repairs and maintenance. This could make it hard for them to stay profitable. It might affect their ability to offer good prices and services.
| Category | Current GST Rate | Recommended GST Rate |
|---|---|---|
| Sale of used EVs by individuals | Taxed higher, not clarified | 5% |
| Sale of used EVs by businesses after refurbishment | 12% | 18% on profit |
| EV cars | 5% | 5% |
| EV 2-wheelers and 3-wheelers | 5% | 5% |
| Electronic Charging Stations | 5% | 5% |
| Petrol/CNG/LPG/Diesel Vehicles | 28% | 28% |
The new GST rules have made the electric vehicle market complex, especially for used cars. The government wants to boost EV adoption but the higher tax on used EVs might slow it down. Fixing these issues is key to speeding up India’s electric car revolution.
Conclusion
The GST changes for used cars in India have brought big updates to the car market. Most buyers and sellers don’t see a big change. But, businesses selling used cars now face new hurdles.
All vehicle types, including electric cars, will have an 18% GST on their sale by businesses. This could change how affordable and popular used cars are. It might also slow down the growth of electric vehicles.
As the rules change, both businesses and buyers will have to adjust to the new used car market in India. Watching how GST affects the used car industry and its future will be key. It will show how these changes impact consumers.
FAQ
What is the new GST rate on used vehicle transactions?
The GST Council has raised the tax on used vehicles for businesses from 12% to 18%. But, for personal buyers and sellers, the rate stays at 12% GST.
How does the new GST structure affect different vehicle categories?
Before, GST rates varied by engine size and length. Now, all used cars sold by businesses face a 18% GST rate. This includes electric vehicles.
What is the difference between individual and business transactions for used cars?
Personal sales are still GST-free at 12%. But, businesses selling used cars as assets must pay the 18% GST rate.
How is the margin value taxed under the new GST rules?
GST is only on the margin. This is the selling price minus the purchase price of the used vehicle.
What are the key concerns regarding the impact of the 18% GST on the used car market?
Experts worry the 18% GST might slow down the market. It could also hurt businesses that rely on used cars. Plus, it might make used cars less affordable, especially in smaller cities and rural areas.
How does the new GST structure affect the second-hand electric vehicle (EV) segment?
New EVs get a 5% GST to encourage buying. But, used EVs now face an 18% GST. This could lower demand and slow down the shift to electric vehicles.
What are the implications of the higher tax rate on used EVs for EV dealers?
EV dealers will have to pay more for repairs and maintenance, which already have an 18% GST. The higher tax on used EVs could also lower their resale value and appeal.
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