Many consumers, dealers, and buyers are often not quite sure about how GST rules apply to used cars. Regardless of whether it is a personal deal or a sale between a firm and a worker, it is essential to consider the GST status of the used vehicle to meet compliance and taxation regulations.

GST on used cars works differently compared to new cars; it primarily focuses on the profit made by the dealer, rather than the entire sale price. This blog highlights this key difference and explains how GST applies to used cars. and what its implications are.

Understanding GST on Used Cars

If you’re dealing with used vehicles, GST applicability becomes critical, especially when it comes to who pays the tax and how the rates work in practice. Before GST, many states had various VAT or state-level taxes for car resale.

Before the introduction of GST, each state applied its own VAT rate, resulting in variations in how cars were taxed. GST replaced this system with a single national tax. However, the difference between road tax and GST remains. Road tax is a state-level charge, while GST is a centrally administered tax.

Who Must Pay GST When Reselling a Car?

In India, the GST for second-hand car dealers applies to all sales by registered dealers, irrespective of whether buyer is individual or business.

The existing GST on second-hand cars is 18% (as of January 2025), and is charged by businesses or dealers registered. The tax applies mainly to the profit margin (this refers to the difference between purchase and sale price). Second-hand car taxation rules in India had been streamlined before 2025, and they mainly relied on the status of a seller and the specifications of the vehicle.

For example, if a dealer purchases a used car and sells it for ₹10 lakh, earning a profit of ₹2 lakh, GST at 18% will be applied only on the profit margin of ₹2 lakh. In this case, the GST amount will be ₹36,000 and not on the full sale value of ₹10 lakh.

When Exactly Is GST Applicable on Used Cars?

When you sell your personal car as an individual (not registered as a business), GST usually doesn't come into play, mainly if you are not in the business of reselling cars. The margin scheme won't be relevant here because this doesn’t count as a business transaction.

● For registered businesses, selling off an old car may involve GST because it's seen as a business transaction. If a company sells a used car to an employee, GST could still apply, particularly if the company is in the business of used car reselling.

● GST on the sale of old cars and GST on second-hand cars are just different ways of referring to the same tax rules for used vehicle transactions.

Related learning: For tips on finance and repayments post-purchase of a car using a car loan, check our blog, “5 Tips on How to Pay Car Loan Faster”

GST Impact on Car Resale Value

The GST rules for used cars have undergone significant changes compared to the earlier VAT system. From January 2025, the GST on used cars sold by dealers increased from 12% to 18%, and this has raised costs for dealers and has in fact, affected the entire used-car market.

Customers who make their car purchases through loans often notice that the price gap between buying from a dealer and directly from an individual seller grows. This is because individual sales are usually exempt from GST, while dealers cannot claim input tax credits on used cars, which adds to their costs.

Related reading: For deeper insight into comparing vehicle aspects, see the blog “Used Car Mileage vs Age: Which One Matters More?”

What You Must Know Before Buying or Selling a Used Car

Whether you're purchasing or reselling a used vehicle, a few essential checks can help you avoid surprises and ensure a fair deal on both sides of the transaction.

Checklist for Buyers

Before purchasing a used car, here are a few points that need to be taken care of:

• Verify that if the seller is a dealer, the GST on used cars is correctly reflected.
• Check whether the dealer is operating under the margin scheme or paying GST on the full transaction value. Also, verify the details mentioned in the sale invoice.
• Consider the impact of GST on the resale of cars in India and how it influences the automobile industry as a whole. A higher GST rate may lead to increased resale prices, affecting both dealers and buyers.

Checklist for Sellers/Dealers

These are just some of the things that must be taken care of before a seller sells a used car:

• When your business is registered, be sure to use the GST on the right basis under the margin scheme and be guided by the GST on old vehicles.
• Ensure the purchase price and sale price are properly documented to justify the margin and the GST basis, e.g. GST when an individual car seller sells or when the sale occurs between dealers.
• Understand depreciation rules for old cars under GST and ensure you cannot claim input tax credit for used vehicles.
• Always remain compliant with car dealers and GST compliance, especially where transactions are frequent or company to company to employee transactions.

GST on Used Cars: Key Takeaways

It is imperative that buyers, sellers, and dealers in used car markets have the knowledge of how GST is applicable to the purchase and sale of used vehicles. The personal sales are not subject to GST, but dealer transactions are subject to 18% GST under the scheme of the margin. The new GST regulations will introduce greater transparency, yet they must involve proper documentation, calculation of margins and adherence to dealers.

GST must be considered as a part of the general price and possible resale value by buyers. Dealers are required to have clear record-keeping and adhere to GST regulations with regard to car resellers. Knowing these requirements will assist all people to make more informed choices when buying or selling second-hand cars or securing used-car finance.

Shriram Finance provides used car loans to help you make the purchase of second-hand vehicles at competitive interest rates, flexible tenures, and other borrower-friendly loan terms. For more information on used car loan interest rates, please visit our website.

FAQs

1. Is GST applicable on sale of car by company?

Yes, if the company is registered under GST and is selling a used car as part of its business, applicable GST on old car sale is generally around 18% on the margin.

2. Does GST apply to used imported cars as well?

Yes, typically, for imported cars, registered dealers charge GST on the profit margin (sale price minus purchase cost), and not the full sale value. This is subject to the applicable rules and conditions in India. Private individuals selling their own imported used cars are usually not liable to GST charges.

3. How does GST on used cars impact loan or financing calculations?

For a financed purchase, a higher GST raises the effective cost, increasing the monthly EMI or loan amount. Buyers should factor the used car finance and taxation aspects into their budgeting before selecting EMI plans.

4. Can GST on a used car be claimed back under any circumstances?

Generally not, because for used cars sold under the margin scheme, input tax credit on used cars is often unavailable. Sellers should verify if ITC applies to their specific transactions.

5. What documents are needed to pay or verify GST on a used car purchase?

Key documents include: invoice showing purchase price & sale price, GST-registered supplier details, margin calculation ledger, and ledger showing GST paid. Also, proof of the buyer’s registration, if applicable for company-to-employee transactions.