The GST Council of India recently announced an increase in GST on used car sales in India. Tax on pre-owned small cars has gone up from 12 % to 18 %. It would, however, not affect everyone looking to sell his/her car. The move has stirred confusion among many on the various aspects of it. Finance Minister Nirmala Sitharaman recently tried to explain the revised tax structure- an effort which went wrong and led the minister to get trolled by netizens.
https://x.com/i/status/1870883104153288955
I think madam FM is confusing me here
Acc . to her here I have to pay tax on the loss also pic.twitter.com/noFrXxDrA9
— Alok Jain ⚡ (@WeekendInvestng) December 22, 2024
A video shared on X ( previously Twitter ) shows the Finance Minister trying to explain the revisions, and failing miserably. She says ‘the tax will apply to the margin value- difference between purchase value and selling price. This means that tax will be levied on 3 lakh, if a car is bought for 12 lakh (first hand) and sold for 9 lakh. Not on the entire amount at which the car is being sold‘ Now read that again! Absurd! This essentially means that the loss made (or depreciation) is being taxed!
The video has gained massive attention and viewership. People are showering comments on the post, mostly roasting the minister for her words. One user says ‘She is going to make #NewTaxRegime Compulsory. We have to then pay even more taxes. Just wait and watch. They are waiting for the right opportunity to make this change.’ Another user says the government is basically taxing the money lost when selling a used car!
What Is The Truth?
So what was it that the minister would have been trying to convey? Well, from what we understand, the GST hike on used small cars that measure under sub-4 meters with petrol engines smaller than 1.2 litres and diesel engines smaller than 1.5 litres will not affect transactions between two individual buyers. This is because GST applies to registered businesses only.
The revision would thus apply to dealer firms and companies selling used cars. Let us shed more light on how this works. If a pre-owned car showroom procures a car from an individual for 9 lakh and then tries to sell it for 10 lakh, it will have to pay GST on the profits made- which amounts to one lakh rupees.
The buying and selling price said by Nirmala Sitharaman in the controversial video, in fact, refers to the procurement and sales prices of the used car dealer firm. The new revision thus means the government getting a larger share of the profits made by used car dealer companies and organisations.
Used car aggregators and authorized marketplaces like Cars24, Spinny, Mahindra First Choice and Maruti True Value were having a good time in the country. These would now have to be ok with the government taking a bigger pie off their profit margins.
It remains to be seen how these aggregators are going to deal with the situation and to know if they would pass the additional cost to the end customer or not. If they choose to do, the used car prices in the country could go further up. Unlike the bygone times, pre-owned cars aren’t very cheap these days. The GST revision could make them further expensive.
In India, the used car segment has a higher compounded annualized growth rate (CAGR) than new cars- 15% against 10%. Shooting new car prices have been a major reason to the increasing acceptance for used ones. The new move from the Indian government could bring more levelling on the pricing front.
