GST on Sale of Used Cars

What You Need to Know – Rates, Rules & Exemptions

With the increase in demand for pre-owned vehicles in India, understanding the Goods and Services Tax (GST) implications on the sale of used cars has become essential for both buyers and sellers. The GST regime has brought clarity to the taxation of second-hand goods, including used cars, but there are specific rules, rates, and exemptions that you should be aware of to avoid any compliance issues.

In this blog, we simplify the GST treatment on the sale of used cars in India, covering applicable tax rates, valuation rules, and who is liable to pay.

🚗 Who is Liable to Pay GST on Used Cars?

GST on used cars depends on who is selling the car and whether it is sold for business or personal use:

1. Registered Dealers (in the business of selling cars):
   GST is applicable on the margin amount as per the Margin Scheme.

2. Individual Sellers (non-business transaction):
   No GST applies if the car is sold by an individual to another individual and the seller is not registered under GST.

3. Companies Selling Their Used Cars:
   If a registered business sells its car, GST is applicable even if it's not in the car trading business.

📊 GST Rates on Sale of Used Cars

As per Notification No. 8/2018 – Central Tax (Rate), dated 25th January 2018, GST on used cars is reduced and charged on margin value, not the full sale price.

📝 No Cess is applicable on used cars if input tax credit (ITC) on the purchase of the car was not claimed.

📌 What is the Margin Scheme?

Under the Margin Scheme, GST is paid only on the profit margin, not the full invoice value.

• Margin = Selling Price – Purchase Price

• If the margin is negative, then no GST is applicable.

• Dealers cannot claim input tax credit (ITC) on such used car purchases.

This scheme helps reduce tax liability for used car dealers and encourages fair pricing in the second-hand car market.

🔄 Transfer of Ownership – Documentation

For any GST-compliant used car sale:

• A tax invoice or margin invoice must be issued by the registered dealer.

• The vehicle registration certificate (RC) must be transferred to the new buyer.

• GSTIN details must be included in the invoice if the buyer is also registered.

🧾 Exemptions from GST on Used Car Sales

GST is not applicable in the following cases:

• Sale of a used car by an individual (not in business) to another individual

• Car sold by a business that has claimed depreciation under Income Tax Act and has not claimed ITC under GST

• Sales by unregistered persons

⚠️ Common Mistakes to Avoid

• Charging GST on the full sale price instead of the margin

• Claiming ITC on a car purchase and then trying to apply the margin scheme

• Not issuing proper invoices

• Confusion between cess and GST on older luxury vehicles

Frequently Asked Questions