The Goods and Services Tax Council in its recent meeting increased the GST on used small vehicles, including electric vehicles, from 12 to 18 percent (a 50 percent jump). Importantly, the 18 percent tax will be calculated on the supplier's profit margin, which is the difference between the buying and selling prices, not on the total value of the vehicle. This increase affects businesses that buy used cars and claim depreciation. Individuals selling or buying old vehicles will continue to be taxed at the lower 12 percent rate.
- Over 5 million used cars sold during 2023-24
- Unregistered dealers unaffected by hike
Currently, petrol, CNG, and LPG cars with an engine capacity over 1200cc and longer than 4000mm are charged an 18 percent GST. Diesel vehicles with 1500cc engines or more are taxed similarly. However, before the hike, cars with engines up to 1200cc were taxed at a lower 12 percent rate. The decision brings on par the tax charged on previously owned small cars and electric vehicles with those on larger cars and SUVs.
Till 2018, used cars had a 28 percent GST, along with an additional cess ranging from 1 to 15 percent. However, in the same year, the Council reduced the GST rate to 12 to 18 percent and eliminated the additional cess.
The used car market has grown significantly over the last few years and is estimated to have sold over 5 million units in 2023-24 alone. This has been attributed to the rise of certified pre-owned programs by OEMs like Maruti Suzuki's True Value, Mahindra & Mahindra's First Choice, Volkswagen certified pre-owned, and online startups like Spinny and CARS24 with better financing options, according to our sister publication Autocar Professional.
Also, see:
Buying a pre-owned car? Prepare to shell out more than before