New GST Rates for Used Cars – Introduction

The Goods and Services Tax (GST) regime in India is continuously evolving to simplify taxation and enhance compliance. One of the significant updates effective from April 1, 2025, is the revision of GST rates on used cars. This change impacts dealers, buyers, and the overall pre-owned vehicle market. This blog explains the new GST rates for used cars, how they apply, and what businesses and consumers should expect.

Uniform GST Rate of 18% on Used Cars

Previously, GST on used cars varied based on engine capacity and fuel type, with rates ranging from 12% to 18%. However, starting April 2025, the GST Council has standardized the GST rate on all used cars to a flat 18%.

This uniform rate applies to all types of used vehicles, including petrol, diesel, and electric vehicles (EVs). This simplification aims to bring clarity and uniformity to the taxation of pre-owned vehicles.

GST Charged on Profit Margin Only

Unlike new cars, where GST is levied on the full sale price, the GST on used cars is charged only on the profit margin—the difference between the purchase price and resale price.

For example, if a dealer buys a used car for ₹5 lakh and sells it for ₹6 lakh, GST at 18% will be applicable only on the ₹1 lakh profit, amounting to ₹18,000.

This margin scheme ensures that GST is paid only on the actual gain made by the dealer, avoiding double taxation on the entire resale value.

No Input Tax Credit (ITC) for Used Cars

Dealers selling used cars under the margin scheme cannot claim Input Tax Credit (ITC) on the purchase of the vehicle. This distinguishes used car sales from other business transactions where ITC is generally available.

Impact on Electric Vehicles (EVs)

The new GST rate of 18% also applies to used electric vehicles. This is a change from previous rules where new EVs attracted a lower GST rate of 5%. The uniform 18% rate on resale may affect the affordability and resale value of EVs.

Private Sales Remain Exempt

It is important to note that private sales of used cars between individuals are exempt from GST. GST applies only when a GST-registered dealer or business sells a used vehicle.

New GST Rates for Used Cars: Conclusion

The revised GST rate brings clarity and uniformity to the used car market, benefiting both dealers and buyers. However, it also impacts electric vehicle resales and dealer margins. To understand how these changes affect your business, connect with Pitchers Global for expert guidance and tax compliance support.