The 55th GST Council meeting, held on December 21st, brought a new wave of changes for the used car market, targeting electric vehicles (EVs) and other categories.
Spoiler alert: it’s not a joyride for businesses, but individual sellers can breathe a sigh of relief. Let’s dive into the nitty-gritty and figure out what’s really going on.
GST Changes Explained
In a nutshell, here’s the latest update:
GST Rate Increase
The GST on the sale of all old and used vehicles, including EVs, has been increased from 12% to 18%, except for vehicles already taxed at 18%.
Scope of Application
Applies to old petrol vehicles with engine capacities of 1200 cc or more and lengths of 4000 mm or more.
Covers old diesel vehicles with engine capacities of 1500 cc or more and lengths of 4000 mm or more, as well as SUVs.
Tax on the Margin
The 18% GST applies only on the margin—the difference between the purchase price and selling price (or the depreciated value if claimed). This ensures that tax is levied on the actual value addition and not the entire vehicle price.
No GST for Unregistered Sellers
If you’re an individual or unregistered seller, congratulations! This GST doesn’t apply to you. But businesses, well, you’re in the spotlight.
The EV Twist
Electric vehicles, which previously enjoyed a lower GST rate of 12%, are now pulled into the 18% tax bracket when sold by businesses. While this aligns EVs with other vehicle categories, it feels like a setback for green mobility initiatives. After all, wasn’t affordability one of the main selling points of EVs?
Crunching the Numbers: How Does This Work?
Let’s break it down with an example:
A business buys an EV in 2019 for ₹15 lakh.
In 2024, they resell it for ₹10 lakh.
Margin = ₹10 lakh - ₹15 lakh = a negative ₹5 lakh.
Now, here’s the catch: GST applies to the higher of the margin or depreciated value in the company’s books. If the EV’s depreciated value is ₹9 lakh, the taxable amount becomes ₹1 lakh (₹10 lakh resale price - ₹9 lakh depreciated value). The GST on this margin would be ₹18,000.
For buyers, though, this could mean higher prices, as businesses are likely to pass on these costs.
Implications for the Industry
Here’s how the new rules shake things up:
Increased Costs for Businesses
Registered used car dealers now face higher tax rates, reducing profitability unless they adjust resale prices upward.
Reduced Affordability
Buyers in Tier 2 and Tier 3 cities—key markets for used vehicles—might bear the brunt of this cost increase, making EVs and other vehicles less accessible.
Growth Slowdown
India’s used car market, worth $34 billion in FY23 with 51 lakh vehicles sold, is projected to reach $73 billion by FY28. However, these tax changes could slow that growth trajectory.
Green Mobility Goals at Risk
The move to increase taxes on EVs feels contradictory to India’s push for sustainable transportation. Higher taxes could discourage buyers from considering used EVs as a cost-effective option.
Conclusion: A Taxing Drive
The GST Council’s decision to align tax rates might simplify compliance but adds complexity for businesses and buyers alike. The increase in GST for EVs, in particular, risks creating barriers for a market that’s still gaining traction.
So, what’s your take on this GST hike? Are you ready to pay more for that used EV, or will it send you back to fossil-fueled options? Let us know your thoughts
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