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The second-hand car market in India is highly un-organized and fragmented.

The transaction happens mainly in following ways:-

1. Individual sells to individual/un-registered dealer

GST is essentially a tax only on commercial transactions. Hence, only those supplies that are in the course or furtherance of business qualify as supply under GST. Hence, any supplies made by an individual in his personal capacity do not come under the ambit of GST unless they fall within the definition of business as defined in the Act.

Sale of personal used car by an individual will not attract GST (neither in the hands of buyer nor seller) because it is not covered within the meaning & scope of supply, since the element of 'furtherance of business' test is missing.

2. Individual sells to registered second-hand dealer

The Buyer is also not liable to pay GST on said purchase by virtue of Notification No.10/2017-Central Tax (Rate) New Delhi, dated 28th June, 2017.

3. Sale of Old & used vehicle by registered dealer

The expression 'supply' as per Sec 7(1) of CGST Act, 2017 includes sale, lease, disposal. Therefore sale/disposal of old or used vehicle by a registered dealer for a consideration, is in the course or furtherance of business and hence it will qualify to be a supply. So, GST is applicable.

4. Leasing of Motor Vehicle

The term supply also includes 'Lease'. So, leasing of Motor Vehicles whether new or old are also leviable to tax under GST. If, there is a transfer of title involves in the lease transaction, it will be considered as supply of goods otherwise it will be treated as supply of services. In case of vehicle purchased & leased subsequent to 01-07-2017, GST shall be applicable @ GST applicable on similar kind of vehicle including compensation cess.

Margin Scheme:

Normally GST is charged on the transaction value of the goods. However, in respect of second hand goods/car , a person dealing is such goods may be allowed to pay tax on the margin.

  1. in case of a registered person who has claimed depreciation under section 32 of the Income-Tax Act,1961(43 of 1961) on the said goods, the value that represents the margin of the supplier shall be the difference between the consideration received for supply of such goods and the depreciated value of such goods on the date of supply, and where the margin of such supply is negative, it shall be ignored; and
  2. in any other case, the value that represents the margin of supplier shall be, the difference between the selling price and the purchase price and where such margin is negative, it shall be ignored.

The purpose of the scheme is to avoid double taxation as the goods, having once borne the incidence of tax, re-enter the supply and the economic supply chain.

Valuation of used Goods/Car:

As per Rule 32(5) of the CGST Rules, 2017, where a taxable supply is provided by a person dealing in buying and selling of second hand goods i.e., used goods as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored.

The proviso to the above rule further provides that in case of the purchase value of goods repossessed from a unregistered defaulting borrower, for the purpose of recovery of a loan or debt shall be deemed to be the purchase price of such goods by the defaulting borrower reduced by five percentage points for every quarter or part thereof, between the date of purchase and the date of disposal by the person making such repossession.

Rate of GST on Supply of Old/Used Vehicles:

Notification No. 8/2018 -Central Tax (Rate) Dated 25-01-2018

Sl No.

Chapter Heading

Description of Goods




Old & used petrol, LPG or CNG driven motor vehicle having engine capacity >=1200CC & length of >=4000mm




Old & used diesel driven motor vehicle having engine capacity >=1500CC & length of 4000mm




Old & used motor vehicle of engine capacity >1500CC (SUVs & UVs)




Old & used motor vehicle other than covered in Sl No.1 to 3



  • The above notification shall not apply, if the supplier of such goods has availed input tax credit as defined in clause (63) of section 2 of the Central Goods and Services Tax Act, 2017, CENVAT as defined in CENVAT Credit Rules, 2004 or the input tax credit of Value Added Tax or any other taxes paid, on such goods.
  • GST Compensation cess shall not be applicable by virtue of Notification No. 1/2018 Compensation Cess (Rate) Dated 25th January 2018.

Rate of GST on leasing of Old/Used Vehicles

Notification No.37/2017 Central Tax (Rate) Dated.13-10-17

Leasing of vehicles purchased and leased prior to 1st July, 2017 would attract GST at a rate equal to 65% of the applicable GST rate (including Compensation Cess).

The Author is a Fellow member of The Institute of Chartered Accountants of India, New Delhi & Fellow member of The Institute of Cost Accountants of India, Kolkata. He can also be reached at


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