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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


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


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


All old and used vehicles other than the above three categories


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

4 Likes   0 Shares   6741 Views


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