On Saturday, the Goods and Services Tax Council decided to make the GST on used cars uniform for businesses. As per the new rule, the GST payable for the purchase and sale of all kinds of used cars will be 18%, which was earlier 12% for some categories of cars. Moreover, the GST for used Electric Vehicles has also been raised to 18%.
However, the individuals buying or selling used vehicles will need to pay GST at the existing rate of 12%.
The GST on used cars has attracted strong opposition from opposition parties, with AAP chief Arvind Kejriwal alleging that govt is breaking the dreams of the middle class by increasing taxes on old vehicles. He alleged that “BJP government at the center is working only for the rich and industrialists.”
It is notable that the GST Council is comprised of finance ministers from all the states, apart from the union govt’s representatives. For voting in the Council, the centre’s vote weightage is 33.33%, while the rest 66.67% comes from the states, including opposition-ruled states. All decisions of the GST council must be approved by a minimum of three-fourths of weighted votes (75%) of the members present and voting.
Therefore, it is wrong to blame only the central govt or the union finance minister for the decision. It was approved through voting by states and the centre.
Now coming to the GST on used cars, it is important to note that this is not a new provision, the tax was already there on buying and selling of used cars. This GST is payable by used car dealers, and the tax is calculated only on the margin the used car dealer makes, not the total price of the car.
For example, if a used car dealer buys an old car for ₹5 lakh and sells it for ₹5.5 lakh, the GST payable will be 18% of the margin ₹50,000, which will be ₹9,000. But if such a transaction is done by an individual and not by a business establishment like a dealer, the GST rate will be 12%.
Earlier, the GST on used ‘small vehicles’, which is vehicles below the length of 4000 mm and engine capacity below 1200cc, was 12%, while the vehicles with above this numbers were already taxed 18%. For diesel vehicles and SUVs the engine size limit was 1500cc. This means, now the 12% slab for used cars has been removed, and all used cars will attract 18% GST.
Therefore, if we take the above example, the earlier GST for a car below 1200cc bought from a dealer was 12% or ₹6,000, and now it will be 18% or ₹9,000, representing a hike of ₹3,000. Although any hike in price is not desirable from the consumer’s point of view, the hike for most cars bought by middle-class individuals will not be prohibitive.
Most people in India buy entry to mid-level cars, costing below ₹10 lakh. As the price for used cars will be much less, the additional GST for the purchase of such used cars will also not be much.
The GST on a used vehicle is applicable only if it is done through a middleman like a used car dealer or an individual trader. If someone buys a used car directly from its existing owner, there will be no tax. That is because, the previous owner won’t be making any margin by selling the car, as obviously the sell price will be lower than the purchase price, due to depreciation of the car’s value.
It is notable that the 18% GST on used cars remains lower than the GST on new fuel-powered cars, which is 28%. Larger cars also attract additional cess at various rates based on size and engine capacity, and total tax on a new vehicle can go up to 50% for diesel SUVs above 1500cc and longer than 4 metres.
However, the inclusion of used electric vehicles in the 18% bracket is surprising, as at present the GST on new EVs is 5%. This represents an anomaly as the tax is now much higher on used electric vehicles compared to new EVs, which is not the case with fossil fuel vehicles.
