Is 18% GST Applicable on the ‘Loss Margin’ of EV Resale? Explained

The Centre’s recent GST Council decision to impose an 18% fee on used EVs resale recently created a controversy. While explaining the rationale behind it Finance Minister Nirmala Sitharaman said that it was decided by referring to taxing the ‘margin value’ of resales. This had spiral undesired effects; some people thought this tax would apply to them if they were selling second-hand cars they owned privately.

But the tax only applies to auto dealers as those involved in the sale of second hand cars and not other people who sell their cars privately. This is the GST Council recommendation and the impact on businesses that sell used EVs Below is the summary of the GST council recommendation Business reselling the used EVs have received a reprieve in terms of tax implementation from the GST council.

Explaination of the GST Rate Change

In the 55th GST Council meeting, the moderated council passed a proposal to raise the GST on the old electric vehicles sold by the companies, from 12% to 18%. To everyone’s relief, Sitharaman said that the proposed tax would not be levied on the total resale value, but only on the margin value that is the difference between the cost price and sale price.

For instance, a car purchased for ₹12 lakh and sold for ₹9 lakhs the GST of 18% is charged on the difference. This clarification was badly needed to debunk the myth that GST would be charged even where a vehicle is sold at a loss.

Simplifying GST for Used EVs

The GST increase targets only those margin value transactions that businesses take in the market. For instance:

• If the used car dealer himself buys an EV for ₹9 lakh and selling it for ₹10 lakh then the 18% GST will be charged only on the profit of ₹1 lakh.
• Barter or the exchange of products or commodities between individuals is excluded in this tax.

This brings the taxation of used EVs in line with the like of petrol and diesel cars with large engines that are currently taxed at 18%.

Key Takeaways

• No GST for individuals: All sales within business such as purchase of a car for ₹12 lakh and selling it for ₹9 lakh will not be subjected to GST.
• GST for businesses: Dealers in sales of cars will be required to make payment of an 18% tax on the profit margin only.

In this decision, all vehicles are effectively being treated the same for taxation, this includes both petrol and diesel as well as electric cars.

Potential of the Second-Hand EV Market

Taxation on dealer margins might also pose some impacts to the second hand EVs in a way that it would discourage resale operations. While new EVs still qualify for a 5% GST, resold EVs may become a hurdle in EV usage popularization.

Other GST Council Decisions

In addition to the changes in used EV taxation, the GST Council made the following recommendations:

• Aviation turbine fuel (ATF): ATF will continue to exist outside the fold of the proposed ‘one-nation-one-tax’ structure of GST and will continue to existed as it is.
• Motor Vehicle Accident Fund: The contribution made by the general insurance companies to this fund, which pays compensation and having cash-less treatment to the victims of road accident, will be allowed as GST credit.

This move approved by the GST Council is aimed at harmonizing the tax structure over different classes of vehicles but has recently become a point of concern over the emergence of second-hand EV selling.