How GST Affects Old Car Sales: Rates and HSN Codes
How GST Affects Old Car Sales: Rates and HSN Codes
Mar 22, 2024
15 Mins
Levy of GST on Old and Used Refurbished Cars
The implementation of GST has brought about changes in the taxation of automobiles, including cars. In this article, we will shed light on the applicability of GST and tax rates on the sale of old and used refurbished cars.
Applicability of GST on Sale of Old Cars
Under GST, supply is considered a taxable event. The definition of supply includes various transactions such as sale, exchange, transfer, barter, lease, rental, license, and disposal, as long as they are done for business purposes and involve consideration. It is important to note that for a transaction to be considered a sale, both consideration and the furtherance of business must be present.
Tax Rates and HSN Code
The GST rate on cars varies from Nil to 28% depending on their use and type. It is worth mentioning that there is no distinction between new and second-hand goods under GST. Therefore, the same GST rates applicable to the sale of new cars also apply to the sale of old cars. However, Notification No. 8/2018- Central Tax (Rate) has reduced the GST rates on the sale of old cars as follows:
- LPG/CNG vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000mm: 18% GST with a compensation cess of 1%
- Diesel vehicles with engine capacity not greater than 1500cc and length not greater than 4000mm: 18% GST with a compensation cess of 3%
- Engine capacity greater than 1500cc:
- If the seller did not claim Input Tax Credit (ITC): 18% GST with a compensation cess of 20%
- If the seller has claimed ITC: 28% GST with a compensation cess of 20%
- SUVs (Engine capacity greater than 1500cc):
- If the seller did not claim ITC: 18% GST with a compensation cess of 22%
- If the seller has claimed ITC: 28% GST with a compensation cess of 22%
- Electric vehicles (both two and three-wheeled): 5% GST with no compensation cess
It is important to note that Compensation cess is not applicable on the sale of old/used motor vehicles if the seller has not claimed ITC.
Valuation of Supply and Input Tax Credit Claims
For dealers engaged in selling and purchasing old cars, a margin scheme is available. Under this scheme, GST is only applicable on the difference between the sale price and purchase price of second-hand cars. However, if the differential amount is negative, it is disregarded.
If a registered person has claimed depreciation as per section 32 of the Income Tax Act, the supply value for the supplier will be the difference between the sum received for supply and the depreciated value of the car on the date of supply.
Additionally, if there is any value addition to the car through repair or refurbishment, the value of such additions will be added to the value of goods and should form part of the valuation.
In terms of Input Tax Credit (ITC) claims, if a dealer purchased a used car from another registered dealer, the selling dealer collects and pays the GST. Therefore, the purchasing dealer can claim the GST paid as input tax credit according to the normal ITC rules.
However, it is important to note that ITC is not available on certain motor vehicles as per section 17(5). This includes vehicles used for transportation of persons with a seating capacity equal to or less than 13, including the driver. ITC can only be claimed if the motor vehicles are used for business purposes, such as being given to employees for business use, demo cars treated as capital assets, or renting a car for business purposes. Additionally, entities in the transport business can claim ITC on vehicles used for transportation of passengers.
In conclusion, the implementation of GST has brought about changes in the taxation of old and used refurbished cars. It is important for sellers and buyers to be aware of the applicability of GST and the associated tax rates.
Levy of GST on Old and Used Refurbished Cars
The implementation of GST has brought about changes in the taxation of automobiles, including cars. In this article, we will shed light on the applicability of GST and tax rates on the sale of old and used refurbished cars.
Applicability of GST on Sale of Old Cars
Under GST, supply is considered a taxable event. The definition of supply includes various transactions such as sale, exchange, transfer, barter, lease, rental, license, and disposal, as long as they are done for business purposes and involve consideration. It is important to note that for a transaction to be considered a sale, both consideration and the furtherance of business must be present.
Tax Rates and HSN Code
The GST rate on cars varies from Nil to 28% depending on their use and type. It is worth mentioning that there is no distinction between new and second-hand goods under GST. Therefore, the same GST rates applicable to the sale of new cars also apply to the sale of old cars. However, Notification No. 8/2018- Central Tax (Rate) has reduced the GST rates on the sale of old cars as follows:
- LPG/CNG vehicles with engine capacity not exceeding 1200cc and length not exceeding 4000mm: 18% GST with a compensation cess of 1%
- Diesel vehicles with engine capacity not greater than 1500cc and length not greater than 4000mm: 18% GST with a compensation cess of 3%
- Engine capacity greater than 1500cc:
- If the seller did not claim Input Tax Credit (ITC): 18% GST with a compensation cess of 20%
- If the seller has claimed ITC: 28% GST with a compensation cess of 20%
- SUVs (Engine capacity greater than 1500cc):
- If the seller did not claim ITC: 18% GST with a compensation cess of 22%
- If the seller has claimed ITC: 28% GST with a compensation cess of 22%
- Electric vehicles (both two and three-wheeled): 5% GST with no compensation cess
It is important to note that Compensation cess is not applicable on the sale of old/used motor vehicles if the seller has not claimed ITC.
Valuation of Supply and Input Tax Credit Claims
For dealers engaged in selling and purchasing old cars, a margin scheme is available. Under this scheme, GST is only applicable on the difference between the sale price and purchase price of second-hand cars. However, if the differential amount is negative, it is disregarded.
If a registered person has claimed depreciation as per section 32 of the Income Tax Act, the supply value for the supplier will be the difference between the sum received for supply and the depreciated value of the car on the date of supply.
Additionally, if there is any value addition to the car through repair or refurbishment, the value of such additions will be added to the value of goods and should form part of the valuation.
In terms of Input Tax Credit (ITC) claims, if a dealer purchased a used car from another registered dealer, the selling dealer collects and pays the GST. Therefore, the purchasing dealer can claim the GST paid as input tax credit according to the normal ITC rules.
However, it is important to note that ITC is not available on certain motor vehicles as per section 17(5). This includes vehicles used for transportation of persons with a seating capacity equal to or less than 13, including the driver. ITC can only be claimed if the motor vehicles are used for business purposes, such as being given to employees for business use, demo cars treated as capital assets, or renting a car for business purposes. Additionally, entities in the transport business can claim ITC on vehicles used for transportation of passengers.
In conclusion, the implementation of GST has brought about changes in the taxation of old and used refurbished cars. It is important for sellers and buyers to be aware of the applicability of GST and the associated tax rates.
Author
Pluto Team
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