GST on Used Electric Vehicles: Clearing the Confusion
The recent decision by the GST Council to impose an 18% tax on the resale of used electric vehicles (EVs) has caused considerable misunderstanding. At the heart of the issue is a clarification by Finance Minister Nirmala Sitharaman, who explained the tax would apply to the “margin value” in resale transactions. Unfortunately, this led to confusion about whether individual car owners would be taxed when selling their used EVs.
In reality, this tax only affects businesses engaged in the resale of used EVs and not private individuals. Here’s a closer look at what this means and its implications.
GST on Used EVs: What’s Changing?
During the 55th GST Council meeting, the panel approved an increase in GST on used EVs sold by businesses from 12% to 18%. This raised concerns, particularly among buyers and sellers in the second-hand EV market.
However, the tax applies only to the margin value—the difference between the price a dealer pays for the used vehicle and the price at which they sell it.
Example of GST on Margin Value:
- A dealer buys a used EV for ₹9 lakh.
- The dealer resells the EV for ₹10 lakh.
- Goods and Services Tax is applicable only on the ₹1 lakh profit margin, not the entire resale amount.
For private sellers, the rules remain unchanged—no Goods and Services Tax applies to transactions between individuals.
Breaking Down the Confusion
Misunderstanding:
Sitharaman’s explanation during the announcement sparked confusion as it seemed to suggest that individual car owners selling their EVs would face an 18% tax, even if they sold at a loss.
Reality:
Private individuals are exempt. The tax hike affects only used car dealers and other businesses involved in reselling EVs.
This clarification aligns the taxation of used EVs with that of used petrol and diesel vehicles with larger engine capacities, which already have an 18% Goods and Services Tax on their margin value.
Key Points to Remember:
- No GST for Individuals:
- If you buy a car for ₹12 lakh and sell it to another individual for ₹9 lakh, no Goods and Services Tax applies.
- GST for Businesses Only:
- If a dealer buys a used car for ₹9 lakh and sells it for ₹10 lakh, the 18% Goods and Services Tax applies only to the ₹1 lakh profit margin.
- Standardized Taxation:
- This move brings parity across different vehicle types—petrol, diesel, and electric.
Implications for the Second-Hand EV Market
The increase in GST on used EVs could impact the second-hand EV market by making it less attractive for buyers. Higher dealer margins may translate into increased resale prices, potentially slowing the growth of EV adoption.
Meanwhile, new EVs remain subject to a 5% GST rate, a move designed to encourage first-time EV buyers and promote greener mobility options.
Other GST Council Updates
- Exemptions on Motor Vehicle Accident Fund Contributions:
- GST exemptions were approved for contributions made by general insurance companies to the Motor Vehicle Accident Fund, which provides compensation and cashless treatment to road accident victims.
- Aviation Turbine Fuel (ATF):
- ATF remains outside the “one-nation-one-tax” regime and will continue under the current taxation system.