Stox N Tax

Uniform GST Rate of 18% on Sale of Used Cars: New Margin Scheme Rule from April 1, 2025

Table of Contents

  1. Introduction
  2. GST Framework for Used Vehicles – Before April 2025
  3. New Rule – Uniform 18% GST on Margin
  4. Margin Scheme Explained with Example
  5. Applicability and Conditions
  6. Who Is Affected by This Change?
  7. ITC Restrictions under Rule 32(5)
  8. FAQs
  9. Conclusion

1. Introduction

From April 1, 2025, a uniform GST rate of 18% is applicable to the sale of used motor vehicles, irrespective of engine capacity, fuel type, or category. This change simplifies the earlier classification-based regime and brings clarity for businesses engaged in trading pre-owned cars.

This new rate applies under the “margin scheme” governed by Rule 32(5) of the CGST Rules, 2017, which allows GST to be levied only on the profit margin and not the entire sale value.

2. GST Framework for Used Vehicles – Before April 2025

Prior to this amendment, GST rates on used cars varied based on factors such as:

Type of VehicleGST Rate (on margin)
Petrol <1200cc / Diesel <1500cc12%
Petrol >1200cc / Diesel >1500cc18%
SUVs >1500cc + length > 4m + ground clearance >170mm28%

This classification created confusion and compliance challenges, particularly for:

  • Car dealerships handling multiple categories
  • Marketplace platforms
  • GST invoicing software logic

3. New Rule – Uniform 18% GST on Margin

The CBIC has now notified that:

“All used motor vehicles sold under the margin scheme will attract GST at a uniform rate of 18%, irrespective of engine capacity or fuel type.”

This amendment aligns with the CBIC Circular and Notifications issued in March 2025, applicable from April 1, 2025.

The applicable rule remains Rule 32(5), but with standardized treatment.

4. Margin Scheme Explained with Example

Rule 32(5) permits GST to be levied only on the margin — i.e., the difference between the selling price and the purchase price — when no ITC has been availed.

Example:

  • Purchase Price (no ITC claimed): ₹5,00,000
  • Selling Price: ₹5,80,000
  • Margin: ₹80,000
  • GST (18% on ₹80,000): ₹14,400

Net GST payable = ₹14,400 only, not on the total ₹5.8 lakh.

Note: If the selling price is less than the purchase price (i.e., margin is negative), no GST is payable.

5. Applicability and Conditions

To apply the 18% on margin, the following conditions must be met:

  • Seller must not claim ITC on the purchase of the used vehicle.
  • The vehicle must be a “second-hand good” sold as such (i.e., no major modification or processing done).
  • Applicable only to registered dealers, companies, or platforms selling used vehicles.

This applies to:

  • Automobile dealerships
  • Online marketplaces (Spinny, Cars24, etc.)
  • Leasing and rental companies selling retired fleet
  • Auction houses and NBFCs disposing of repossessed vehicles

6. Who Is Affected by This Change?

Positively Affected:

  • Car Dealerships: Simplified rate structure
  • NBFCs & Banks: Easier tax calculation on repossessed vehicle sales
  • Online Resale Portals: Unified compliance and billing system
  • Used Car Aggregators: Easier training, reduced tax classification errors

7. ITC Restrictions under Rule 32(5)

It is important to note that:

  • GST is payable only on margin if no ITC was claimed on the purchase.
  • If ITC is availed (e.g., a vehicle purchased from another registered dealer), the normal GST rate applies on full sale value, and the margin scheme cannot be applied.

Hence, traders must carefully maintain documentation to prove the non-availment of ITC if margin-based billing is used.

8. FAQs

Q1. Does this apply to electric vehicles?

Yes, if the vehicle is second-hand and ITC was not claimed, the 18% rate applies on margin.

Q2. Can an individual seller use this scheme?

No. Only registered persons under GST can apply the margin scheme.

Q3. What if a loss is incurred on the sale?

If the sale price is lower than the purchase price, GST is not payable.

Q4. Can ITC be claimed if margin scheme is applied?

No. Once the margin scheme under Rule 32(5) is adopted, input tax credit (ITC) is barred.

Q5. Is GST applicable on repossessed vehicles sold by banks/NBFCs?

Yes, GST at 18% on margin is applicable if ITC was not claimed, and the vehicle is sold “as is.”

9. Conclusion

The move to standardize GST at 18% on the margin for all used cars is a much-needed simplification. It removes the complexities of engine-type-based classification and provides uniformity across the used vehicle industry.

Businesses dealing in second-hand vehicles should:

  • Transition all systems to reflect the 18% flat rate on margin
  • Review ITC treatment on vehicle purchases
  • Maintain detailed records proving margin-based eligibility

This change not only reduces litigation risks but also improves operational clarity and tax compliance.

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