GST hiked to 18 percent on used small cars, EVs purchased by businesses

The Goods and Services Tax Council, in its recent meeting, increased the GST on used small vehicles, including EVs, from 12 to 18 percent (a 50 percent jump). Importantly, the 18 percent tax will be calculated on the supplier's profit margin, which is the difference between the buying and selling prices, rather than the total value of the vehicle. This increase affects businesses that buy used cars and claim depreciation. Individuals buying or selling old vehicles will continue to be taxed at the lower 12 percent rate.

1. Over 5 million used cars were sold during 2023-24
2. Unregistered dealers are unaffected by the hike

Currently, petrol, CNG, and LPG cars with over 1200cc of engine capacity and more than 4000mm of length are taxed at an 18 percent GST. Diesel vehicles with engines of 1500cc or more are subject to the same tax rate. However, before the hike, cars with engines up to 1200cc were taxed at a lower rate of 12 percent. The decision brings on par the tax charged on previously owned small cars and electric vehicles with those on larger cars and SUVs.

Until 2018, used cars were subject to a 28 percent GST and an additional cess ranging from 1 to 15 percent. However, that same year, the Council reduced the GST rate to 12 to 18 percent and eliminated the additional cess.

The used car market has grown significantly in recent years and is estimated to have sold over 5 million units in 2023-24 alone. This growth has been attributed to the rise of certified pre-owned programs from OEMs such as Maruti Suzuki's True Value, Mahindra & Mahindra's First Choice, Volkswagen Certified Pre-Owned, and online startups like Spinny and CARS24, which offer better financing options, according to our sister publication Autocar Professional.

Also, see:

Buying a pre-owned car? Prepare to shell out more than before