The introduction of GST has brought a positive impact on the automobile sector. Previously, traders could not claim credit for excise duty and VAT paid, which would further increase the cost of purchases. However, GST has eliminated the cascading effect of taxes, reducing the price of cars.
Effects on the price of a car due to GST
Previously, car consumers were charged two main taxes, namely VAT and excise duty. The combined rate would be somewhere between 26.5% and 44%. In comparison, GST rates on cars are much lower ranging from zero to 28%. This reduced the price of automobiles and benefited consumers.
Applicability of GST and cess on automobiles
GST applies to almost all goods and services. This also includes automobiles, which includes automobiles. The GST rate on cars ranges from zero to 28% depending on the type and use. In addition to GST, new car sales are subject to compensatory cess.
Value of supply for calculating GST and taxes on cars
- Value of supply: Under GST, the value of supply is the money collected by the seller from the buyer in exchange for the sale of goods or services. In the case of related parties, GST is charged on the transaction value. The transaction value is the value at which unrelated parties would trade in the ordinary course of business.
Let us calculate and check how the concept works-
For example, Mr. A buys a car for Rs 6.5 lakh from the dealer and accessories. Then GST and cess are calculated as follows:
Selling Price: Rs 6,50,000 (Delivery Value)
GST rate of 18% (falls under the small car category)
1% GST rebate
Total Value: Rs 6,50,000 + Rs 1,23,500 = Rs 7,73,500 - Discounts in the ordinary trade practice: If the seller provides a deduction from the sales price through discounts before delivery or at the time of delivery and such discount is indicated on the invoice, it is excluded from the value of the delivery. If such discounts are not reflected in the invoice, GST must be paid on the same.
- Post-delivery discounts: Post-delivery discounts are allowed as a deduction from the rateable value only if the following conditions are met:
- The discount provided should be a direct consequence of the agreement with the customers.
- Such an agreement should be concluded either before or at the time of delivery of the goods.
- ITC should be reversed by the customer.
- The discount should be tied to the relevant delivery invoice that was originally issued by the taxable person when the goods were delivered.
- Insurance, Registration, etc. as Reimbursements: The seller collects various amounts as a net agent such as insurance, registration fees, credit card usage charges, etc. GST will not be applicable on amounts collected as a net agent. However, if he collects amounts beyond the amounts incurred, then in that case GST would be charged equally.
Abatement for the supply of used cars
In terms of Notification No. 37/2017 Central Tax (Rate) & 38/2017 Integrated Tax (Rate) & 07/2017 Compensation Charge (Rate) dated 13/10/2017, goods falling under chapter 87 can avail of the benefit of paying GST rate @65% of taxable value only if the following conditions are fulfilled.
- The Motor Vehicle supplier is a registered person.
- Such supplier has purchased the Motor Vehicle before 1st July 2017 and has not availed input tax credit of Central Excise Duty, Value Added Tax, or any other taxes paid on such vehicles.
Subject to the above conditions, a registered person dealing in the sale of a second-hand motor vehicle (which falls under Chapter 87) would be able to claim a rebate of 35% of the value of taxable supplies and pay GST on only 65% of the supply value of the such motor vehicle.
Rule 32(5) of CGST Rules, 2017
Rule 32(5) deals with taxable supply provided by a person engaged in buying and selling second-hand goods. The rule states that if second-hand dealers supply second-hand goods after minor processing which does not change the nature of the goods, and if no input tax credit has been claimed on the purchase of such goods, then GST is applicable only on the difference between the selling price and the purchase price. If the value of such delivery is negative, it is not taken into account.
Notice of exemption for the purchase of old and used cars
According to Notice No. 10/2017 – Central Tax (Rate) & 4/2017 Compensation Tax (Rate) of 01.07.2017 exempts the domestic purchase of used goods from an unregistered person (Section 9(4) of the CGST Act) through a registered person engaged in the purchase and sale of used goods according to section 32(5) of the CGST Act 2017.
FAQs
Is GST applicable if I sell used vehicles as a business?
Yes, if you are involved in the business of selling used motor vehicles, GST is applicable. You need to charge GST on the sale price of the used vehicle.
Are there any exemptions for GST on the sale of used vehicles?
Some countries may provide exemptions or lower rates for certain types of used vehicles or under specific conditions. It’s essential to check the local GST regulations for any such exemptions.
Can I claim input tax credit on the purchase of used vehicles for resale?
Yes, if you are a registered GST taxpayer selling used vehicles, you can claim input tax credit on the GST paid on the purchase of those vehicles for resale.
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