Buying a Small Used Car or EVs From a Dealer? Be Ready to Pay Higher GST
The Goods and Services Tax (GST) Council has decided to increase the GST rate on used small cars and electric vehicles (EVs) sold by registered dealers. The new rate of 18%, up from the earlier 12%, will apply to cars with engine capacities up to 1200 cc and used EVs.
How the Tax Works
GST on used cars is not charged on the full price of the vehicle but rather on the margin or profit made by the seller. This tax applies only to registered dealers, while individual sellers remain exempt.
A Level Playing Field
This hike aligns the GST rates for small cars and EVs with those of larger vehicles like SUVs. Previously, larger vehicles were taxed at 18%, while smaller cars enjoyed a lower rate of 12%.
Impact on the Used-Car Market
The used-car market has been booming, with over 5 million cars sold in 2023-24 alone. Certified pre-owned programs from companies like Maruti Suzuki, Mahindra, Volkswagen, and startups like Spinny and Cars24 have helped drive this growth. However, this tax hike may make cars sold by registered dealers more expensive, potentially pushing more buyers toward unregistered sellers who don’t have to pay GST.
Background of GST on Used Cars
In 2018, the GST Council reduced the tax on used cars to 12-18% from 28% and eliminated additional cesses. This made used cars more affordable. However, with the current hike, registered dealers might see a dip in sales as buyers look for cheaper alternatives.
Struggles for New Small Cars
The demand for new small cars has been declining, partly due to rising prices. Buyers who might have considered entry-level vehicles are now opting for pre-owned cars, which offer better features at lower prices.
Conclusion
The GST hike is likely to affect both buyers and sellers in the used-car market. While registered dealers may face challenges, unregistered sellers could see an increase in demand. Buyers will need to weigh their options carefully, factoring in the added tax when buying from registered sellers.
