Does Selling a ₹6 Lakh Used Car for ₹1 Lakh Attract ₹90,000 GST? Here's the Truth

The GST Council's decision to impose 18% GST on used EV resale has caused confusion among the public. However, the tax applies only to dealers and is charged on the profit margin, not individuals selling their cars. Here's what you need to know.

By Ashik Kumar Dec 24, 2024, 13:14 IST

The recent GST Council decision to impose 18% GST on the resale of used electric vehicles (EVs) has created confusion among the public, especially due to viral social media posts. Let’s break down the reality behind the claims and what this GST hike means for used car sellers and dealers.

The Viral Claim

A social media post claimed that if you purchase a vehicle for ₹6 lakh and later sell it for ₹1 lakh, you would have to pay 18% GST on the ₹5 lakh margin, amounting to ₹90,000. This post caused panic, but the truth is far from it.

What the GST Rule Actually States

The confusion stems from a misunderstanding of the GST rule announced at the 55th GST Council meeting. Here’s what the rule actually says:

Who Pays the GST?

The GST applies only to businesses involved in the resale of used cars, not individual sellers.
If you’re an individual selling your old car to another individual (friend, family, or anyone), no GST will be levied.

GST on Profit Margin Only

For businesses, the 18% GST applies only to the profit margin made during the resale of the vehicle.
Example: If a dealer buys a used EV for ₹9 lakh and sells it for ₹10 lakh, GST will be charged on the ₹1 lakh profit, not the entire sale price.

Why the Confusion?

The misunderstanding likely arose from examples shared during the GST Council meeting. Finance Minister Nirmala Sitharaman clarified that the tax applies to the price difference (profit margin) in resale transactions, but some media reports misinterpreted this, leading people to believe that all used car sales attract GST.

Impact on Used EV Market

The GST increase from 12% to 18% on resale EVs could affect the second-hand EV market in several ways:

Higher Prices for Buyers

Dealers may pass on the GST burden to customers, making used EVs more expensive.
New EVs More Attractive

New EVs attract only 5% GST, which might make them a more appealing option for buyers compared to taxed second-hand vehicles.
GST expert Abhishek Rastogi explained the rules with examples:

No GST for Individual Sellers

If an individual sells a used car to another person, GST is not applicable.
Example: Selling a ₹18 lakh car for ₹13 lakh to a friend attracts no GST.

GST for Dealers

Dealers must pay GST only on their profit margin.
Example: A dealer buying a car for ₹13 lakh and selling it for ₹17 lakh will pay 18% GST on the ₹4 lakh profit margin, not the entire price.