Used car dealerships provide a valuable service by helping buyers find vehicles that fit their needs and budget. However, with the introduction of Goods and Services Tax (GST) in India, it has become essential for these dealers to understand its implications. In this article, we will discuss everything you need to know about GST for used car dealers.
Understanding GST
GST or Goods and Services Tax is the indirect tax that applies to goods and services sold in India. It is essentially a value-added tax that is levied at every stage of the supply chain. GST has replaced multiple indirect taxes such as service tax, value added tax (VAT), and central excise duty.
GST on used cars
Used car dealerships need to be aware of the various GST implications on their sales. The GST on the sale of used cars is 12% of the transaction value. This means that used car dealerships are required to pay a 12% tax on the sale of every vehicle.
It is worth noting that GST applies only to the margin or profit that the dealer earns on the sale of the vehicle. This means that the dealer would need to calculate the GST on the value of the vehicle minus the purchase price. For instance, if a dealer bought a car for Rs. 5 lakh and sold it for Rs. 6 lakh, the GST applies only to the Rs. 1 lakh profit earned by the dealer.
Type of Car |
Engine Capacity |
GST Rate |
Compensation Cess |
Total Applicable Cess |
Petrol Car |
Up to 1200 cc |
12% |
Nil |
12% |
Petrol Car |
Over 1200 cc |
18% |
Nil |
18% |
Diesel Car |
Up to 1500 cc |
12% |
Nil |
12% |
Diesel Car |
Over 1500 cc |
18% |
Nil |
18% |
GST rate based on types of used cars
When purchasing a used car in India, the Goods and Services Tax (GST) rate varies based on the type and engine capacity of the vehicle. As of now, the GST rates for used cars are structured to ensure that buyers understand the tax implications. Below is a detailed explanation and a table summarizing the GST rates for different types of used cars:
GST on sale of used car parts
Apart from the sale of used cars, used car dealerships often sell parts and accessories as well. It is essential to note that different GST rates apply to different auto parts and accessories. The GST rates on auto parts are at 28%. It is crucial to understand the specific GST rates that are applicable for each product being sold.
Implications of GST for used car dealers
The introduction of GST has led to several changes in the used car dealership business. Here are some implications to be aware of:
- Increased compliance requirements: With the introduction of GST, used car dealerships are now required to register for GST. This means that they must maintain proper books of accounts, file periodic GST returns, and be prepared to undergo GST audits.
- Better transparency: GST has made the tax system more transparent, which means dealers can now claim input tax credit for the GST paid on purchases. Input tax credit allows dealerships to reduce their overall tax liability.
- Improved supply chain management: GST has led to an improvement in supply chain management as logistics and transportation costs have decreased. With the introduction of GST, interstate transportation of vehicles has become more efficient, faster, and cost-effective.
GST has brought significant changes to the used car dealership business. Dealerships must be aware of the rules and regulations related to GST as it impacts their operations as well as their customers. The introduction of GST has made the tax system more transparent, improved supply chain management, and increased compliance requirements. Used car dealerships must understand the specific GST rates that apply to the sale of their cars and parts and follow proper compliance procedures.
