GST on Used Cars in India: Rules, Rates & Applicability Explained

Thinking of buying or selling a used car? Whether you’re purchasing from a dealership or selling your old vehicle, understanding the GST (Goods and Services Tax) implications is crucial. The GST rules for used or second-hand vehicles are different from those on new cars. This article covers the tax rates, exemptions, HSN codes, and how GST affects pricing for pre-owned vehicles in India.

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    GST Rates

    Is GST Applicable on Used Cars?

    Yes, GST is applicable on the sale of used cars, but the tax structure is different from that of new vehicles. The government introduced special rates in 2018 to ease the burden on buyers and promote the resale market.

    GST Rates on Used Cars

    The GST rate depends on the engine size and fuel type of the car being sold. Here’s a breakdown:

    Type of Vehicle GST Rate Conditions
    Petrol cars (engine <1200cc) 12% No ITC on purchase of the car
    Diesel cars (engine <1500cc) 12% No ITC
    Other vehicles (including SUVs) 18% No ITC
    Electric vehicles (EVs) 5% Applicable from 2019 onwards

    Note: These rates apply only if the seller is a GST-registered dealer and hasn’t claimed an input tax credit (ITC) on the car when it was purchased.

    HSN Code for Used Cars

    Used cars are categorized under HSN Code 8703, same as new motor vehicles.

    Vehicle Type HSN Code GST Rate
    Used Petrol Cars 8703 12%
    Diesel cars (engine <1500cc) 8703 12%
    SUVs & Others 8703 18%

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    What About Individual-to-Individual Sales?

    When a private individual sells a car to another private person, no GST is applicable. GST is only charged when the sale is made by:

    • A used car dealer
    • A car leasing company
    • A business registered under GST

    So, if you sell your personal car to a friend, you don’t need to pay any GST.

    Margin Scheme for Used Car Dealers

    Registered dealers selling used cars without claiming ITC can opt for the margin scheme:

    • GST is charged only on the profit margin, not on the full selling price.
    • Margin = Sale price – Purchase price
    • If the margin is negative (i.e., sold at a loss), no GST is payable.

    This scheme benefits dealers and makes used cars more affordable for buyers.

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    Example: GST on a Used Car Sold by Dealer

    Let’s say a dealer bought a used car for ₹4,00,000 and sold it for ₹4,50,000.

    • Margin = ₹50,000
    • GST @12% on margin = ₹6,000
    • Total Bill to Buyer= ₹4,50,000 + ₹6,000 = ₹4,56,000

    This is much lower than paying GST on the entire ₹4.5 lakh value.

    Input Tax Credit (ITC) on Used Cars

    • If a business claims ITC while purchasing a car, it must charge GST at full applicable rates (28% + cess).
    • If ITC is not claimed, the lower rates (12% or 18%) apply under the margin scheme.

    Hence, no ITC = lower GST, which encourages better pricing in the resale market.

    Unique Features of BUSY Accounting Software for Used Cars

    • Vehicle-wise inventory tracking for better stock management.
    • Auto-calculation of GST on margin scheme for used vehicles.
    • Commission tracking for agents and sales staff.
    • Detailed vehicle purchase and sale history reports.
    • Integrated service and repair expense tracking.

    Final Thoughts

    GST on used cars is designed to keep resale prices reasonable by applying tax only on margins and disallowing ITC-based double taxation. As a buyer or seller, understanding these rules helps you negotiate better and stay compliant. Whether you’re a private owner or a dealer, knowing how GST applies to second-hand cars can save you money and avoid tax-related surprises.

    Frequently Asked Questions

    • What is the GST rate on used cars in India?
      12% for small petrol/diesel cars and 18% for SUVs and others, if sold by a registered dealer.
    • Is GST applicable if I sell my car directly to another person?
      No. GST is not applicable to individual-to-individual car sales.
    • What is the margin scheme?
      A special GST scheme for dealers where tax is applied only on the profit margin, not the entire selling price.
    • Can I claim ITC on a used car?
      ITC is not allowed on cars used for personal or business transport unless used for specific services like training or transportation.
    • Is GST applicable on car exchange offers?
      Yes. In exchange transactions, GST applies to both the old car (if bought back by dealer) and the new car.
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