In a significant policy shift, the GST Council has approved increasing the Goods and Services Tax (GST) on the resale of old and used vehicles by businesses from 12% to 18%. The move applies specifically to vehicles sold with a margin by businesses that claim depreciation, while transactions involving individuals will continue to attract the lower 12% rate.
This change significantly impacts the resale tax landscape for used vehicles, including electric vehicles (EVs), marking a shift in how the second-hand vehicle market is taxed.
EV Market Takes a Hit
The revised rate is expected to ripple through the used EV market, which had been steadily growing thanks to rising interest in eco-friendly mobility solutions. While new EVs continue to benefit from a 5% GST rate to boost adoption, old EVs resold by businesses now fall under the 18% bracket. This reclassification could curb the appeal of second-hand EVs, as higher taxes may result in increased costs for buyers.
Coupled with the existing 18% tax on input parts and repair services, businesses handling used vehicles are likely to face higher operational expenses, impacting profit margins and pricing strategies.
Challenges for the Used Vehicle Market
The used car market, which has been thriving due to relatively low tax incidence on transactions based on the supplier’s margin, is expected to face headwinds following the GST hike. This tax increase could also disrupt the ecosystem of businesses specializing in used vehicle resale, as they navigate the dual challenges of higher tax incidence and rising operational costs.
Relief for Individual Sellers
While businesses face a heavier tax burden, individuals selling or purchasing used vehicles remain unaffected by the hike, as their transactions continue to attract the 12% GST rate. This distinction ensures some stability for personal buyers and sellers, preserving affordability in private transactions.
Balancing Growth and Revenue
The GST Council’s decision aligns with its broader tax policies for vehicles, which already levy an 18% tax on larger engine capacities, such as diesel SUVs and petrol vehicles over 1200cc. However, bringing smaller vehicles and EVs into this bracket when sold by businesses raises questions about the potential impact on affordability and market dynamics.
