Goods and services tax on second-hand car sales increased to 18%

The Goods and Services Tax Council (GST Council) has announced an increase in the Goods and Services Tax (GST) rate on sales of second-hand cars, including electric vehicles (EVs), from 12% to 18%. The decision was taken at a recent meeting chaired by Finance Minister Nirmala Sitharaman to work out a uniform tax rate for all categories of vehicles.

However, this change will not affect transactions between individuals. Private sales of second-hand cars will remain exempt from GST, providing relief to those dealing in personal vehicles.

Under the revised structure, GST will only apply on the supplier’s profit – the difference between the purchase price and sale price of the vehicle. If the vehicle is declared depreciated, it will be taxed on the depreciated value. This margin-based approach to taxation is designed to ensure that only the value added during resale is subject to GST, rather than the entire transaction value.

Previously, 12% GST was applicable on all second-hand cars, including electric vehicles. In addition, gasoline vehicles with an engine displacement of 1,200cc or more and a length of 4,000 mm or more, diesel vehicles with an engine displacement of 1,500cc or more, a length of 4,000 mm or more, and SUVs are required to pay an 18% consumption tax rate. The new decision will standardize the tax rate at 18% for all second-hand cars, regardless of their category or specification.

The move is expected to have a complex impact on the used car market. While the increased tax rate may increase costs for some buyers, a deposit-based tax ensures fairness by taxing only the actual value added. Stakeholders in the vehicle resale industry, including dealers and traders, will need to adapt to updated rates and compliance requirements.

Industry experts stress that a unified GST rate can simplify the tax structure and bring greater transparency to the used car market. However, there are concerns that higher tax rates may deter some buyers, especially in price-sensitive market segments. The decision’s impact on the growth of the used EV market, a rapidly expanding segment, will also be closely watched.

As these changes come into effect, the GST Council’s decision reflects broader efforts to simplify tax policy while responding to changing market dynamics. The flat rate is designed to balance revenue generation and fair tax practices in the automotive industry.

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