GST on Sale of used and old cars, Explained the margin scheme and calculation
The Goods and Services Tax (GST) regime for the sale of used cars in India has recently undergone major reforms, streamlining compliance and reducing ambiguity for car dealers, businesses, and buyers. One of the most significant updates, introduced in the 55th GST Council Meeting, is the adoption of a uniform 18% GST rate on all used vehicles sold under the margin scheme. This move ensures fairness by taxing only the profit margin, instead of the total sale value.
In this comprehensive blog, we’ll walk you through:
- GST rules and legal framework for used vehicles
- The margin scheme for valuation
- Latest GST rate changes and updates (2025)
- Input Tax Credit (ITC) restrictions
- Real-world examples and accounting treatments
- Sample GST-compliant invoice formats
1. GST Law on Used Cars: Overview
Under GST law, the sale of a used or old car qualifies as a taxable supply of goods if made for consideration and in the course or furtherance of business.
Who Is Liable to Pay GST?
- Registered Businesses or Dealers: GST applicable
- Individual Sellers (for personal use): GST not applicable
Note: A transaction between two unregistered individuals is outside the scope of GST.
2. GST Applicability for Different Scenarios
3. GST Rate & HSN Code for Used Cars (Updated for 2025)
Note: Cess is exempt on used vehicles if ITC was not claimed on original purchase.
4. The Margin Scheme: Rule 32(5) of CGST Rules
Registered dealers who have not availed ITC can use the margin scheme to compute GST liability.
How It Works:
- For stock purchases: GST = Sale Price – Purchase Price
- For capital assets: GST = Sale Price – Depreciated WDV
No GST if margin is negative (i.e., sale at a loss).
Examples
Case 1: Positive Margin
- Purchase/WDV: ₹50,000
- Refurbishment Cost: ₹5,000
- Sale Price: ₹65,000
- Margin: ₹10,000
- GST @18% = ₹1,800
Case 2: Negative Margin
- WDV: ₹5,00,000
- Sale Price: ₹4,50,000
- Loss: ₹50,000 → GST Not Applicable
5. GST Rate Change from January 2025
As per the January 2025 update, GST on used cars (including EVs) has been standardized at 18% for all vehicles sold under the margin scheme (no ITC claimed). This ensures uniformity and reduces rate classification confusion.
Earlier, GST rates varied based on fuel type and engine capacity.
6. Input Tax Credit (ITC): What You Can Claim
As per Section 17(5) of the CGST Act, ITC is generally not allowed for passenger vehicles unless used for specific business purposes.
ITC Allowed For:
- Registered dealers reselling cars
- Passenger transportation (e.g., taxis)
- Driving schools (training)
- Demo vehicles (capitalized assets)
ITC Not Allowed For:
- Cars used by employees or office
- Personal use vehicles
7. GST Accounting for Used Car Sale (With Examples)
Example 1: GST Inclusive Sale
- Sale Price (incl. GST): ₹6,07,501
- WDV: ₹1,25,491
- Exclusive Value = ₹6,07,501 × 100/118 = ₹5,14,831
- GST @18% = ₹92,670
Journal Entry:
Entry to be recorded in Books of account.
Bank A/c Dr. ₹6,07,501
To Car A/c ₹1,25,491
To Output GST Payable ₹92,670
To Profit on Sale ₹3,89,340GSTR Filing:
Figures to be fill in the GSTR 3B and GSTR-1
- Taxable Value: ₹5,14,831
- GST Payable: ₹92,670 (as CGST/SGST or IGST)
Example 2: GST Exclusive Sale
- Sale Price (before GST): ₹6,07,501
- WDV: ₹1,25,491
- Margin: ₹4,82,010
- GST @18% = ₹86,762
- Final Amount to Buyer = ₹6,94,263
Journal Entry:
Entry to be recorded in Books of account.
Bank A/c Dr. ₹6,94,263
To Car A/c ₹1,25,491
To Output GST Payable ₹86,762
To Profit on Sale ₹4,82,010GSTR Filing:
Figures to be fill in the GSTR 3B and GSTR-1
- Taxable Value: ₹4,82,010
- GST: ₹86,762
8. GST Invoice Format – Used Car (Inclusive Pricing)
XYZ Consultancy Pvt. Ltd.
GSTIN: 09ABCDE1234Z1A1
Invoice No: INV/2025/045
Date: 24-06-2025
Place of Supply: Uttar Pradesh
Buyer: Mr. ABC (Unregistered)
Declaration: Invoice issued under Rule 32(5). Margin scheme applied. No ITC available to the buyer.
9. GST Invoice Format – Used Car (Exclusive Pricing)
XYZ Consultancy Pvt. Ltd.
GSTIN: 09ABCDE1234Z1A1
Invoice No: INV/2025/046
Date: 24-06-2025
Place of Supply: Uttar Pradesh
Buyer: Mr. ABC (Unregistered)
Declaration: Invoice issued under Rule 32(5). Margin scheme applied. No ITC available to the buyer.
10. Final Thoughts: What You Must Know
- GST applies only on the profit margin, not full sale value
- No GST if sold at a loss (negative margin)
- Inclusive pricing hides margin; exclusive pricing may reveal it to buyer
- Maintain clear documentation and declare in returns (GSTR-1 & 3B)
- Use appropriate invoice format as per Rule 32(5)
Disclaimer: The information provided in this post/article is for general guidance and informational purposes only. While I am a qualified Chartered Accountant, the views expressed here are my personal interpretations based on the prevailing GST laws and recent updates as of 2025. You are advised to consult us at our office we are reputed ca firm in noida.
This should not be construed as a substitute for professional advice tailored to your specific situation. Readers are advised to consult a qualified tax professional or legal advisor before taking any decision based on this content.
I shall not be held liable for any loss or damage arising from the use of this information.
