GST Applicability on Pre-Owned and Refurbished Cars

Bio

Ankit Rahangdale is a seasoned finance professional with a distinguished background as a Chartered Accountant. Currently, he leads the Finance Department at Pice. With over five years of invaluable experience in the banking and finance sector, honing his expertise through esteemed institutions such as ICICI Bank and Standard Chartered Bank.

24 Sep 24
9 mins

Ankit Rahangdale

08 Mins
24-09-24

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Table of Contents

GST on Cars Purchased for Personal Use
Compensation Cess Under the GST Act
GST Compensation Cess for Automobiles
GST on Commercial Vehicles Explained
GST Regulations for Used Cars
GST Rates for Electric Vehicles
GST on Sales of Used Car Parts
GST Impact on Pre-Owned Car Dealerships
The Bottom Line

GST on personal-use vehicles ranges from 5% to 28%, with different rates for electric, fuel cell, and disabled-use vehicles.
Compensation cess applies to specific goods, such as motor cars, coal, and aerated water, in addition to GST.
The GST rate for commercial vehicles varies between 12% and 28%, depending on the vehicle type and use.
GST on used cars is set at 12% or 18%, with no compensation cess, boosting the pre-owned car market.
The GST rate for electric vehicles has been reduced to 5%, promoting cleaner transportation options.

The Goods and Services Tax has made an impact on various sectors in India, including the automobile sector. The pre-owned and refurbished cars market has seen significant growth over the years. However, GST has brought several changes to the rates and applicability of tax on the purchase and sale of used cars.

In this blog, we will discuss GST on cars purchased for personal use, compensation cess, GST rate of old commercial vehicle sales and other relevant aspects.

GST on Cars Purchased for Personal Use

The Goods and Services Tax applicable on vehicles which are purchased for personal use ranges between 5% and 28%. These vehicles include bicycles, motor vehicles and cars. Along with the vehicles, the replacement parts and accessories also attract GST. The lowest GST rate of 5% was introduced in 2018 at the 31st GST Council Meeting. It applies to motorised or non-motorised carriages which are driven by disabled people and the parts of these carriages. A GST rate of 12% is applicable on:

Vehicles which are driven by fuel cells like hydrogen fuel cell technology
Non-motorised cycles bicycles and delivery tricycles including their accessories and parts
Two or three wheelers which are driven by electrical motors
Animal-drawn and hand-driven vehicles like hand carts, rickshaws, etc.

An 18% GST rate is applicable on:

Carriages for babies and its parts of replacement
Vehicles for disabled people (terms and conditions applied)

On the other hand, a GST rate of 28% is applicable on:

Mopeds and motorcycles, irrespective of sidecars
Accessories and parts of mopeds and motorcycles as well as sidecars

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Compensation Cess Under the GST Act

Compensation cess, introduced as a part of the Goods and Services Tax Act, refers to a type of charge which is applicable on some goods in addition to the GST. Before the implementation of GST, producers used to collect Value-Added-Tax (VAT) in cases of interstate trade. Compensation cess under GST compensates the manufacturing states or the producers for possible losses.

It is important to remember that compensation cess does not apply to goods exported by India. Some goods where compensation cess is applicable are:

Solid fuels like coal derivatives, coal, ovoids and briquettes
Motor cars
Aerated water

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GST Compensation Cess for Automobiles

Let us take a look at the table below to learn about the applicable tax rate and compensation cess on sale of different types of vehicles:

Vehicle Type	Rate of GST	Compensation Cess
Petrol/LPG/CNG vehicles less than 1200cc engine capacity and more than 4 metres in length	28%	15%
Petrol/LPG/CNG vehicles less than 1200cc engine capacity and less than 4 metres in length	28%	1%
Diesel vehicles of engine capacity less than 1500cc and more than 4 metres in length	28%	20%
Diesel vehicles of engine capacity less than 1500cc and less than 4 metres in length	28%	3%
Diesel cars greater than 1500cc engine capacity, more than 4 metres in length and 170mm or more ground clearance	28%	22%
Motorcycles with more than 350cc engine capacity	28%	3%
Vehicles eligible for ambulance use	28%	Nil
All electric vehicles sizes (including two or three-wheelers)	12%	Nil
Motorised vehicles (three-wheelers)	28%	Nil
Motorcycles/mopeds with engine capacity of more than 350cc	28%	Nil
Fuel cell cars as well as hydrogen fuel cell technology cars	12%	Nil

GST on Commercial Vehicles Explained

Commercial vehicles are those vehicles which are meant for agricultural use or carry goods and passengers. The applicable GST rate on such cars ranges between 12% and 28%.

A GST rate of 12% is applicable in these cases:

Self-loading trailers or self-unloading trailers used for agriculture
Tractors (excluding road tractors) used for semi-trailers with engine capacity of more than 1800cc

A GST rate of 18% is applicable in these cases:

Refrigerated motor cars
Special Purpose Vehicles (SPV) like breakdown lorries, crane lorries, etc.
Buses which run on biofuels and are used as public transportation
Self-propelled trucks excluding lifting or handling tools which are used for goods transportation over short distances

A GST rate of 28% is applicable in these cases:

Motor cars for transportation of 10 or more people (except public transport buses which are powered by biofuel)
Accessories and parts of different motor cars (except tractor parts)
Semi-trailers or road tractors with engine capacity of more than 1800cc

In addition to the fixed rate of GST on commercial vehicles with a seating capacity of 13 people (including drivers), a compensation cess of 15% is applicable.

GST Regulations for Used Cars

The rates on used cars were reduced for the growth of the market. Presently, a GST rate of 12% is levied on small used cars (petroleum gases) with up to 1200cc engine capacity. For diesel cars, the engine capacity limit is up to 1500cc. If the engine capacity of used cars exceeds 1200cc and 1500cc (for petrol and diesel cars respectively), 18% GST is charged.

Compensation cess on all sizes of used cars has been set to Nil rate, provided there has been no claimant of Input Tax credit (ITC) under the credit scheme of CENVAT.

Let us take a look at the table below to understand the GST regulations for used cars:

Category of Used Car	GST	Compensation Cess	Total Tax
Petrol cars with engine capacity of more than 1200cc	18%	Nil	18%
Petrol car till 1200cc engine capacity	12%	Nil	12%
Diesel car with more than 1500cc engine capacity	18%	Nil	18%
Diesel car till 1500cc engine capacity	12%	Nil	12%

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GST Rates for Electric Vehicles

Before the 36th GST Council Meeting, the GST rate applicable to electric cars was 18% and their accessories. Since the Council Meeting, the reduced rate was 5%, irrespective of their commercial or private use. This rate applies to charging stations and EV chargers as well.

GST on Sales of Used Car Parts

Used car dealers, along with selling used cars, also sell parts of these cars. A GST rate of 28% is levied on auto parts. However, it is important to remember that the rate of tax varies depending on the type of accessories and parts.

GST Impact on Pre-Owned Car Dealerships

The impact of GST on pre-owned car dealerships are:

Better Management of Supply Chain: Regarding the reduction in transportation and logistics costs, the complete supply chain solution has also improved. Additionally, interstate car transportation has turned into more affordable and smooth.
More Compliance Requirements: With the implementation of GST, the business compliance requirements for pre-owned car dealerships have increased. They need to file regular GST returns, be subjected to audits, etc.
Increase in Transparency: Under GST, second-hand car dealerships are eligible to claim Input Tax Credit for the GST they have paid on purchase. This helps in reducing the tax liability.

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The Bottom Line

The Goods and Services Tax made a significant mark on the pre-owned and refurbished cars market in India. It has simplified the taxation structure which increased transparency and growth. For instance, the reduction in the GST rate of old commercial vehicle sales to 12% has increased sustainability and has been beneficial for consumers.

FAQs

Is GST applicable on the sale of old commercial vehicles?

Yes, GST is applicable on the sale of old commercial vehicles. The applicable GST rate for old commercial vehicles depends on the vehicle's size, engine capacity, and fuel type, generally ranging from 12% to 28%. Additionally, no compensation cess is charged if there is no Input Tax Credit (ITC) claim.

How to calculate GST on the sale of old vehicles?

To calculate GST on the sale of old vehicles, you need to determine the applicable GST rate based on the vehicle type and engine capacity. Multiply the sale price by the GST rate (12% or 18% for most used vehicles) to get the tax amount. Ensure that no compensation cess applies if Input Tax Credit has not been claimed.

What is the GST rate for commercial truck vehicles?

The GST rate for commercial trucks varies depending on the truck’s type and usage. Generally, the GST rate is either 18% for refrigerated trucks and special-purpose vehicles or 28% for larger trucks with seating capacities of more than 10 passengers. Compensation cess may also apply in certain cases.

What is the GST rate on scrap sale of vehicles?

The GST rate on the scrap sale of vehicles is generally 18%. This applies to vehicle parts sold as scrap. Depending on the type of vehicle and materials being scrapped, the GST rate may vary, but 18% is common for auto parts.

What is the HSN code for old truck sale and GST rate?

The HSN (Harmonized System of Nomenclature) code for the sale of old trucks is typically 8708, which covers motor vehicle parts. The GST rate for old trucks is generally 18%, with no compensation cess if there is no claim for Input Tax Credit.

Can I claim GST on a commercial vehicle purchase?

Yes, you can claim GST on the purchase of a commercial vehicle if the vehicle is used for business purposes. The GST paid can be claimed as Input Tax Credit (ITC), reducing your overall tax liability, provided the vehicle is used to further taxable business supplies.

How do you calculate GST on a sale price?

To calculate GST on a sale price, determine the applicable GST rate for the item (e.g., 12%, 18%, or 28%). Multiply the sale price by the GST rate and add this to the total cost to get the final price. For example, if a vehicle is sold for ₹1,00,000 at an 18% GST rate, the GST amount is ₹18,000, making the total price ₹1,18,000.