GST on Used Cars Explained: If you’re planning to sell a used car in India, understanding the Goods and Services Tax (GST) implications is a must. Whether you’re a private seller or a GST-registered dealer, this guide breaks down everything you need to know—clear, simple, and straight to the point.
GST on Used Cars Explained
| Key Point | Details |
|---|---|
| Who pays GST? | Only GST-registered dealers; private individuals are exempt |
| GST Rate (2025) | 18% flat rate on profit margin of used cars |
| Margin Scheme | Tax only on the difference between purchase and sale price |
| Input Tax Credit (ITC) | Not allowed under the margin scheme |
| Impact on Buyers | GST-inclusive price from dealers; no GST if buying from another private individual |
| Official GST Info | GST Portal |
If you’re selling a used car in India, knowing how GST works can save you from unexpected costs or legal hiccups. While private sellers have it easy with no GST at all, registered dealers must tread carefully under the 18% tax regime. By understanding the margin scheme, ITC rules, and who needs to pay what, you’ll not only make a clean deal but also stay compliant with tax laws.
Understanding GST on Used Car Sales
Private Individuals (Unregistered Sellers)
Good news: If you’re just a regular person selling your old car to someone else (maybe a neighbor or friend), you don’t have to worry about GST at all. The government doesn’t consider this a business activity, so no tax is involved.
GST-Registered Dealers
But if you’re a dealer or a company registered under GST, you are required to charge 18% GST on the profit margin when selling used vehicles. This applies to all types of used vehicles including electric vehicles (EVs).
What is the GST Rate for Used Cars?
As of December 21, 2024, the GST Council made it simpler by setting a flat 18% rate across the board for all used vehicles. This replaced the earlier complex structure where rates varied between 5% and 28%. So, no matter whether it’s a sedan, SUV, or electric car—if it’s second-hand and being sold by a registered dealer, the 18% GST rule applies. Source: IndiaFilings
GST on Used Cars Explained: How the Margin Scheme Works?
Under the Margin Scheme, GST is not charged on the full sale price. Instead, it’s calculated only on the profit you make. Here’s how it breaks down:
Example 1: Sale with Profit
- Purchase Price: ₹10 lakh
- Selling Price: ₹12 lakh
- Profit Margin: ₹2 lakh
- GST (18%): ₹36,000
Example 2: Sale with Loss
- Purchase Price: ₹10 lakh
- Selling Price: ₹8 lakh
- Loss: ₹2 lakh
- GST: Not applicable (since there’s no profit) This scheme ensures dealers only pay GST on the real income from the transaction.
Input Tax Credit (ITC) Limitations
If you’re a dealer using the Margin Scheme, keep this in mind:
You cannot claim Input Tax Credit (ITC) on the GST paid when you initially bought the used car. This rule exists to avoid double-dipping—you’re already getting the benefit of lower GST via margin taxation. Source: Economic Times
GST Calculation: Real-Life Scenarios
Let’s look at a couple more examples:
Scenario 1: Profit Case
- Car Bought at: ₹8 lakh
- Sold at: ₹10 lakh
- Profit: ₹2 lakh
- GST (18%) on Profit: ₹36,000
Scenario 2: Loss Case
- Car Bought at: ₹10 lakh
- Sold at: ₹8 lakh
- Loss: ₹2 lakh
- GST: Nil This makes things fair, especially for dealerships that often adjust car prices based on demand.
How Buyers Are Affected
Buyers should know this:
- When buying from a GST-registered dealer, the 18% GST is included in your final price. It’s not always broken out, but you are paying it.
- When buying from another private individual, you don’t pay any GST. So, it can be cheaper. That’s why used car buyers often prefer direct deals from individuals over dealer networks.
ATM Withdrawal Limits 2025: How Much Cash Can You Really Take Out in One Day?
FAQs on GST on Used Cars Explained
Q1: Is GST applicable if I sell my car to a friend?
No. As long as you’re not in the business of selling cars, you don’t have to pay GST.
Q2: What if I sell my car at a lower price than I bought it?
No GST is applicable because there’s no profit.
Q3: Can I claim Input Tax Credit for buying a used car?
Not under the Margin Scheme. ITC is not allowed in this case.
Q4: Does GST apply to electric used cars?
Yes, the same 18% rate applies to all used cars, including EVs.
Q5: Is GST included in the used car price shown by dealers?
Usually, yes. But always ask for a tax invoice to be sure.
