SALE TAX ON 2nd HAND SALE OF CAR

Second-Hand Goods

Second-hand goods are goods previously used by you or someone else.

The standard rules apply to transactions in second-hand goods between registered dealers. You will need to charge tax if you sell second-hand goods as part of your turnover, and will be entitled to claim tax credits for any DVAT paid on the purchase of second-hand goods.

Where the person from whom you bought the second-hand goods may not be registered (e.g. a private person selling his motor car to a registered dealer), there will be no tax charged and no tax invoice issued to you for the sale.

The law allows you to claim an input tax credit in such cases, provided:

• You, as a registered dealer, sell second-hand goods;

• You purchased the goods from a resident seller who is not registered for DVAT;

• You have adequate proof of the amount paid for the goods;

• The goods were purchased as stock for resale in the same form, or as raw materials for other goods; and

• The sale of the goods, or the goods into which they were incorporated, is liable to DVAT.

If you meet these conditions, the amount of the input tax credit allowable will be the least of:

• The input tax on the original cost of the goods when bought by the seller;

• The tax fraction (i.e., tax rate/(100+tax rate)) of the original cost of the goods to the seller;

• The tax fraction of the fair market value of the goods at the time of purchase of the goods by you; and

• The tax fraction of the consideration paid by you to the seller.

The tax credit can normally be claimed when you buy the second-hand goods. However, if the amount paid for the second-hand goods is more than Rs. 2,000, the input tax credit will be allowed only in the tax period when the goods are resold.

The following example illustrates the calculation of the input tax credit for second-hand goods: