The 18% GST on used EVs is one of the latest tax changes announced by the Indian government, and it has generated a lot of discussion in the electric vehicle (EV) market. The Goods and Services Tax (GST) Council‘s decision to impose this tax on used electric vehicles (EVs) has raised some questions, particularly about its impact on both buyers and sellers in the used car market.
In this blog, we will explore the implications of the 18% GST on used EVs, provide clarity on the tax structure, and discuss how this will impact the buying and selling process.
Table of Contents
What Does the 18% GST On Used EVs Mean?
In December 2024, the GST Council announced a unified 18% GST on used EVs, aligning the tax rate on used electric vehicles with that of certain petrol and diesel vehicles. The GST will only apply to the margin value of the resale transaction, not the entire selling price. This means the tax will be calculated based on the difference between the purchase and selling prices of the used EV.
Key Details of the 18% GST On Used EVs
- Who is Affected: The GST applies primarily to businesses that buy and sell used EVs. Individuals selling used EVs privately are exempt from GST.
- Tax on Profit Margin: The 18% GST is charged on the profit made by the seller, not on the full selling price. For example, if a used EV is bought for ₹9 lakh and sold for ₹10 lakh, the GST will be calculated on the ₹1 lakh profit margin.
- No GST on Losses: If the resale is made at a loss, the GST does not apply. For instance, if an EV is bought for ₹12 lakh and sold for ₹9 lakh, there is no GST on the negative margin.
Finance Minister Nirmala Sitharaman clarified,
“When the discussions happened, it was on that margin value… the margin value between purchased product price and resale price, on the margin only this 18 percent is put.”
How GST On Used EVs Will Be Calculated
The GST on used EVs is based on the difference between the purchase price and the selling price after depreciation has been applied to the vehicle’s original value. Here’s how the calculation works:
GST Calculation Example
- Purchase Price of Used EV: ₹9 lakh
- Selling Price of Used EV: ₹10 lakh
- Profit Margin: ₹10 lakh – ₹9 lakh = ₹1 lakh
- GST: 18% of ₹1 lakh = ₹18,000
In this example, the 18% GST is applied to the ₹1 lakh profit margin, resulting in a GST charge of ₹18,000.
What Happens If the Seller Sells at a Loss?
If the used EV is sold at a price lower than its depreciated value, then no GST is applicable. For instance:
- Purchase Price: ₹12 lakh
- Depreciated Value: ₹8 lakh
- Selling Price: ₹7 lakh
- Margin: ₹7 lakh – ₹8 lakh = (-₹1 lakh)
Since the margin is negative, no GST will be charged on this transaction.
Who Needs to Pay GST On Used EVs?
The 18% GST on used EVs applies to businesses or GST-registered dealers involved in the buying and selling of used electric vehicles. Private sellers who do not deal in used cars as a business will not be required to charge or pay GST. This change mainly impacts used car dealerships or platforms like Cars24, Spinny, and CarDekho that sell used EVs to consumers.
GST On Used EVs in Various Scenarios
- Sale by GST-Registered Dealers: When a registered dealer sells a used EV, they must charge 18% GST on the profit margin.
- Private Sale: If an individual sells their used EV to another private individual, no GST is applicable.
- Sale Through Platforms: If a used EV is bought and sold through a platform, GST will be charged on the margin.
Pankaj Jain, Tax Partner at EY India stated,
“GST will be applied at a rate of 18% on the calculated value using the formula: Sale price minus Purchase value (after deducting depreciation). If the resulting value is negative, no GST will be due.”
Exceptions and Special Cases
There are certain situations where the 18% GST may not apply or could be adjusted:
- Dealership Exemption: If a dealership is involved in the sale of used EVs, they may apply the GST as per the prevailing norms for used goods, which involves calculating tax based on the difference between the buying and selling price, known as the margin scheme. This ensures that the GST burden isn’t levied on the entire sale price, but only on the margin between purchase and sale.
- Buy-Back Schemes: Certain government or manufacturer-run buy-back schemes may offer alternative GST treatment, especially if they are part of a broader push for EV adoption. In such cases, tax exemptions or reduced rates may apply, though these schemes are often specific and vary by location.
- Vehicles Sold for Scrap: If the vehicle is being sold as scrap and is not fit for further use, the GST on scrap may apply instead of the regular GST. However, this is a nuanced area and requires professional guidance.
Impact of the 18% GST On Used EVs Market
The introduction of the 18% GST on used EVs could have a few implications for both buyers and sellers:
Impact on Buyers:
- Increased Cost: The addition of an 18% GST will increase the upfront cost of buying a used EV. Although the GST on new EVs is lower at 5%, the higher GST on used vehicles could discourage some buyers who were looking for more affordable alternatives to new EVs.
- Possible Drop in Demand: Higher taxes may result in reduced demand in the used EV market, especially among price-sensitive buyers. The added cost could make second-hand EVs less attractive compared to new models, which may be more affordable due to government subsidies.
- GST Input Credit: In certain cases, if the buyer is a GST-registered business, they might be eligible for an input tax credit (ITC) on the 18% GST paid on the used EV. This could offset some of the additional costs.
Impact on Sellers:
- Increased Transaction Costs: Sellers, particularly individual sellers, may face challenges in understanding the new GST rules. Dealers and professional resellers will have to ensure that they comply with GST regulations, adding to administrative costs and complexities.
- Resale Market Complexity: The introduction of the 18% GST could create complexity in pricing used EVs. Sellers might be required to price their vehicles higher to cover the additional tax burden, which could impact the competitiveness of the used EV market.
- Compliance Issues: Sellers must ensure proper invoicing and documentation to remain compliant with GST regulations. This could become cumbersome for individuals selling their vehicles privately, potentially reducing the volume of transactions in the informal market.
Why Was GST On Used EVs Introduced?
There are several reasons why the government decided to impose an 18% GST on used electric vehicles:
- Standardization: The move brings used EVs in line with the GST structure for new EVs. New electric vehicles currently enjoy a lower GST rate (5%), but now the used market is taxed similarly to other types of used vehicles, which typically attract an 18% GST.
- Revenue Generation: The government is looking to boost revenue through the taxation of the used vehicle market, which is significant in India. With the rising number of electric vehicles, taxing this sector is seen as a way to create additional income for public spending, particularly in infrastructure development for EV charging stations, etc.
- Leveling the Playing Field: By imposing an 18% GST on used EVs, the government aims to ensure parity between used electric and internal combustion engine (ICE) vehicles, both of which are taxed similarly in the resale market.
Future Outlook: Will This Impact EV Adoption?
While the introduction of an 18% GST on used EVs could dampen demand in the short term, it might not have a long-term negative impact on the overall adoption of electric vehicles in India. The government is continuing to provide incentives and subsidies for the purchase of new EVs, which could offset the higher tax rates in the used market. Over time, as EV infrastructure improves and more EVs become available, the used EV market will likely become more competitive, and these tax changes may be adjusted accordingly.
However, for the time being, potential buyers of used EVs will need to factor in the new tax structure when considering the affordability of a second-hand electric vehicle.
Conclusion
The imposition of an 18% GST on used EVs represents a significant shift in the Indian government’s tax approach toward the electric vehicle market. While it standardizes the tax structure and could help the government generate additional revenue, it also introduces new complexities for both buyers and sellers. In the short term, this may lead to a slowdown in the used EV market, especially among price-sensitive consumers. However, as the market evolves, we may see adjustments or new policies that encourage the growth of both the new and used EV segments in India.
If you’re looking to buy or sell a used EV, it’s essential to stay updated on the latest tax rules and seek professional advice when necessary to ensure compliance and avoid unexpected financial burdens.
Read more: Hyundai IONIQ 5 Guinness World Record: Achieves Greatest Altitude Change by an Electric Car
FAQs
Who needs to pay GST on used EVs?
GST on used EVs applies to GST-registered dealers. Private individuals selling used EVs are exempt from this tax.
What is the GST rate on used EVs?
The GST rate on used EVs is 18%, which is applied only to the profit margin of the sale, not the entire sale price.
What happens if I sell my used EV at a loss?
If the resale margin is negative (i.e., the vehicle is sold for less than its depreciated value), no GST is applicable.
Do platforms like Cars24 charge GST on used EVs?
Yes, GST-registered platforms like Cars24 charge 18% GST on the profit margin when they sell a used EV.
How is GST calculated on used EVs?
GST is calculated on the profit margin, i.e., the difference between the purchase price (after depreciation) and the selling price. The formula is: GST = 18% of (Sale Price – Purchase Price)
