Understanding GST on the Sale of a Used Car by an Organisation Not Dealing in Used Cars

Are you considering buying a used car from your organisation, even if their primary business isn't in selling used vehicles? This article will provide a comprehensive guide on the applicability and implications of GST in such a situation.

GST Applicability

Yes, GST is applicable when a used car is purchased from an organisation, regardless of whether their business primarily deals with those vehicles or not. This rule is part of the broader GST framework in India, ensuring that all taxable transactions are captured under the GST regime.

Organisation's GST Registration Requirement

For this transaction to be valid, it is crucial that the organisation is a GST registered company and its turnover surpasses the threshold limit for GST registration. This ensures that the sale of the used car complies with the mandates under the GST law.

GST Rates and Cesses

The GST applicable on the transaction varies based on the engine capacity (CC) of the used car. Typically, the rates are:

12% for small cars 18% for sedans and commercial vehicles 28% for super luxury cars, with an additional Compensation Cess

However, under Notification 1/2018-C Cess, the Compensation Cess is exempted for used cars. For more detailed rates and valuation, refer to Notification No. 8/2018-CTR dated 25.1.2018, which amended Notification 11/2017-CTR on the rate and valuation for the sale of used cars by GST-registered persons.

Exemptions and Reliefs

There are certain exemptions and reliefs available if the car was purchased before the introduction of GST. In such cases, the organisation can claim a 35% benefit in taxes. Consequently, the sale will only require the charging of the remaining 65% of the tax rate applicable under normal circumstances.

What Happens If the Organisation Is Not Registered Under GST?

If the organisation is not registered under GST, the GST on the sale of the used car will not be applicable. This is a unique provision under the GST law that recognizes the status and compliance of the seller.

Implications for the Buyer

As a buyer, you need to understand the implications of the transaction:

If the car is being sold after it was purchased during the pre-GST era, you might not be eligible for an Input Tax Credit (ITC) or refund as you are an individual and not a registered GST entity. The transaction will be considered a supply of an asset under GST, and the GST will be levied on the transaction value. Your organisation will have to issue a GST invoice for the sale of the used car, ensuring all legal compliances are met.

By understanding these nuances, you can navigate the process more effectively and ensure that both parties are meeting their obligations under the GST law.