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Margin Scheme was introduction by way of Notification No.10/2017 dt. 28/06/2017

  • Applicable for those GST-registered taxpayers who deals in the purchase and sale of second-hand or used goods and makes the purchase of such goods from unregistered persons.
  • Dealer will pay GST only on the margini.e., the difference between the sale price and the purchase price of the second-hand goods
  • If there is no margin or a loss, NO GST is payable in such case
  • GST shall be chargeable only when such dealer resells the goods either as such or after minor refurbishing/ repairs
  • Margin Scheme is applicable ONLY when there is no change or minor processing (repairing/ refurbishing) of the goods.
  • If such processing changes the nature of goods, the dealer cannot opt for the 'Margin Scheme'
Margin Scheme for Second Hand Goods under GST

Calculation of Value for Margin Scheme

  • To be calculated as per Rule 32(5) of CGST Rules
  • Dealer cannot avail ITC on purchase of Second Hand Goods
  • Value of Second-hand goods = Selling Price – [Purchase price + Minor repairing cost]
  • Purchase price of second-hand goods in case of Goods possessed after loan = Original Purchase Price of defaulting borrower- 5% depreciation for each quarter or part thereof

Example 1

CarDekho deals in buying and selling second-hand cars. It purchases a second-hand car (original price Rs. 4 Lakhs) for Rs. 2,50,000 from Mr. Ramesh (unregistered person) and sells it again to Mr. Suresh after minor repairs for Rs. 3,00,000. Suppose, repairing cost is Rs. 10,000.

  • In this example, the supply of car by Mr. Ramesh to CarDekho shall not be chargeable to tax.
  • Supply of car by CarDekho to Mr. Suresh will be liable for GST.
  • GST will be levied on the margin earned by CarDekho.
  • The margin will be derived on the basis of the difference of sale price and purchase price including repairs cost i.e., Rs. 40,000 [3,00,000 – (2,50,000 + 10,000)]

Example 2

X dealing in electronic items sold an electronic item to Mr. Y for Rs. 10 Lakhs on 01-01-2020. The electronic item is purchased by Mr. Y on an installment basis. Mr. Y defaulted in payment of EMIs on 04-09-2020 and such item was taken back by the company on 21-10-2020. The electronic item was again sold by X on 11-01-2021 at Rs. 8,10,000. Calculate GST payable by X on re-sale of such item if the GST rate is supposed 28%.

  • Date of purchase by Mr. Y: 01-01-2020
  • Date of Disposal by X after repossession: 11-01-2021
  • Quarters or part thereof between 01-01-2020 & 11-01-2021 = 4 quarters & 11 days to be taken as 5 quarters
  • Purchase Price of repossessed goods by X = Rs. 10 lakhs – (5% * 5 quarters) i.e., Rs. 7,50,000
  • Margin on sale of second-hand item = 60,000 (Rs. 8,10,000- Rs. 7,50,000)
  • GST Payable by X on resale of item = Rs. 60,000 * 28% = Rs. 16,800.
 

GST Rates on supply of second-hand vehicles

GST rates on Second Hand Vehicle have been specified via Notification No. 08/2018 dt. 25.01.2018

Description of Goods

GST Rate

Old and used LPG or CNG-driven motor vehicles with engine capacity of 1200 CC or more and Length of 4000 mm or more

18%

Old and used Diesel driven motor vehicles with engine capacity of 1500 cc or more and Length of 4000 mm or more

18%

Old and used Sports Utility Vehicle (SUVs) with engine capacity of 1500 cc or more

18%

All old and used vehicles other than the above three categories

12%

Further Two Clarification by way of this notification came namely

In case a motor vehicle is sold by a registered person who has claimed depreciation u/s 32 of the Income Tax Act:

Margin = Selling price of Motor Vehicle- Depreciated value of the motor vehicle on the date of sale as per Income Tax act

If Negative, it shall be ignored

In any other case:

Margin = Selling Price – Purchase Price

If Negative, it shall be ignored

GST rates on second-hand goods other than vehicles

  • No difference w.r.t. Rate (whether Second Hand Goods or New Goods)
  • If an article is sold @ 28%, then that article will be sold @ 18% only, even if it is Second Hand Goods
  • Only Exception to this rule is Motor Vehicles Rate as mentioned in Notification 08/2018

Is input tax credit available on the purchase of second-hand goods

  • If Dealer is option for Margin Scheme, he cannot opt for ITC on purchase of Second-Hand Goods
  • This is one of the pre-condition for Margin Scheme as mentioned in Rule 32(5)

Cases where Second Hand Goods are sold directly by the Second Hand Goods Owner to Consumer/Buyer & Commission is charged on such sale

  • In such cases,'Margin Scheme' shall not apply to him
  • he shall be liable to pay GST at the rate of 18% on the commission
  • Threshold of 20 lakh / 10 lakh for services applicable for commission in such cases
 

Threshold for Registration in GST

  • Threshold for Registration as per Section 22 if Aggregate Turnover exceeds 40 lakhs
  • Aggregate Turnover means Aggregate Value of All Taxable Supplies, Exempt Supplies, Exports &Interstate branch transfer within same PAN
  • Split opinion over this point among experts as per Rule 32(5) read with Rule 15(1)
    • Opinion 1: Margin Value only
    • Opinion 2: Whole Sale Amount of Car
  • On a Safer side, it is better if you take Whole Sale Value amount for calculation of Threshold

Composition Scheme for Margin Scheme

  • A person who is under Margin Scheme cannot opt for Composition Scheme i.e., paying Composition Tax on Margin Value
  • But the dealer may opt for Normal Composition Scheme, but he has to pay GST Composition Tax on full Value of Sale amount of such Second Hand Goods
  • Practically, if we see, Threshold for Composition is 1.5 Cr which may get exhausted after sale of only few 4 wheelers, also, you have to consider the margin per vehicle and the amount

 

Published by

Akhil Pachori
(Chartered Accountant)
Category GST   Report

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