Authors
Pankaj Menon is a fact-checker based out of Delhi who enjoys ‘digital sleuthing’ and calling out misinformation. He has completed his MA in International Relations from Madras University and has worked with organisations like NDTV, Times Now and Deccan Chronicle online in the past.
The Goods and Services Tax Council (GST Council) has recommended an increase in the taxation rate on sale of used cars – which will now be taxed at 18%. This revision, announced during the 55th GST Council meeting led by Finance Minister Nirmala Sitharaman, applies to all used vehicles, including electric vehicles (EVs). The rationale is to create uniformity in taxation of all second hand vehicles; however, this move has drawn criticism for disproportionately impacting middle class India who rely on affordable transportation options.
The new tax hike announcement has come close on the heels of the caramel popcorn tax hike further aggravating consumer frustration, which social media users expressed online. Soon after the announcement, social media was inundated with users expressing frustration over how tax policies are increasingly targeting everyday consumers while benefiting wealthier individuals and businesses.
Many accused the Modi government and Finance Minister Nirmala Sitharaman of “tax extortion”, while others are grappling with the implications of the new tax structure and took to platforms like X (formerly Twitter) to voice their discontent, with some humorously speculating about potential future taxes on common items like drinking water.
One particularly viral post, which had garnered 1.9 million views at the time of writing, illustrated a common concern: “I bought a car in 2014 for ₹6 lakhs. If I sell it today for ₹1 lakh, I will have to pay 18% GST on the margin (₹6 lakhs – ₹1 lakh = ₹5 lakhs). After selling the car, I will get ₹10k, while the Modi government gets ₹90k.”
This sentiment was echoed by many users who shared similar interpretations of the tax revision, citing clips from Sitharaman’s press conference and expressing outrage at what they see as an unfair burden on the middle class.
This sentiment was echoed by many users who shared similar interpretations of the tax revision, citing clips from Sitharaman’s press conference and expressing outrage at what they see as an unfair burden on the middle class.
Of the many interpretations viral online is one particular clip from the news segment ‘News Ki Paathshaala’ on Times Now, presented by anchor Sushant Sinha.
According to the anchor “If one buys a new car worth Rs 6 Lakhs in 2014, and sells it in 2024 for Rs 1 Lakhs… now the government is saying, you bought the car for Rs 6 Lakh and sold it at Rs 1 Lakhs- the difference being Rs 5 Lakhs. Meaning you are selling the car at a loss of Rs 5 Lakhs. Now the government is asking you to pay tax on this loss of Rs 5 Lakhs if you are selling it… Now 18% of Rs 5 Lakh is Rs 90,000. And so Rs 90,000 will be the tax to the government.”
But what exactly is the revision and are the interpretations correct? Newschecker decided to cross-verify.
What Did The Finance Minister Say?
During a press conference discussing the GST Council’s recommendations, Finance Minister Nirmala Sitharaman addressed the decision to raise the GST on electric vehicles (EVs). “We want to promote EVs. The GST council is in favour of EVs. Nobody is stopping people from buying EVs. But if an individual is selling used EVs to other individuals, it does not have any GST… But if a company has bought an EV or a regular registered used car seller who buys EVs, does some propping up in it and adds value in it, then sells it… it was felt by stats and many others also that the EV market is not saturated as yet and that used cars will come. Therefore the used car category includes electric cars, petrol cars and also diesel cars…This 18% GST will be levied on the margin as before, on any used cars. So it is on the margin, not on the entire amount in which the car has been sold.”
GST On Resale Of Used Cars By Dealers Not New
“As an individual, if you sell your used car to another individual, you wouldn’t have to pay any GST. If you are selling it to a car dealer, then the dealer will have to pay GST when he sells it further. The GST is applicable based on the difference in the dealer’s buying price, and reselling price (the margin),” says Suranjali Tandon, Associate professor, NIPFP.
Until now, used cars that were being resold by dealers/registered individuals were already subject to a 12% to 18% GST depending on the engine capacity and size of the car.
“Here, we must be mindful that GST is only applicable on the sale margin, i.e. the difference between the consideration received for the sale of cars and the depreciated value of such vehicles on the date of supply. If the margin is negative, the sale price shall be ignored, and GST shall not apply on such sale,” says Shankey Agrawal, Partner at BMR Legal.
Also Read: Viral Video Of Nirmala Sitharaman Saying She Is ‘Not The One who Gets Taxed’ Is Manipulated Using AI
What Is The GST Under The Revised Decision?
The new ruling raises the GST rate to 18% for vehicles that were previously taxed at 12%, including older electric vehicles (EVs), when resold by businesses. This higher GST rate applies solely to businesses involved in the resale of vehicles, not to private sellers. Individuals selling and buying used cars for personal use remain exempt from the increased rate.
In a press release, the Ministry of finance further stated, “GST is applicable only on the Value that represents Margin of the Supplier, that is, the difference between the Purchase price and Selling price (depreciated value if depreciation is claimed) and not on the value of the vehicle. Also, it is not applicable in case of unregistered persons.”
“Private car owners will not be impacted. GST is applicable only to registered entities. Accordingly, GST will apply to fleet owners, car dealerships, and businesses having GST registrations,” Shankey Agrawal clarifies.
Giving an example, Agarwal further explains, “If the car is bought for INR 10,00,000/- and used for 4 years, the depreciated value of the vehicle under income tax (assuming 15% depreciation) would be roughly INR 5,00,000/-. If the car is sold for more than INR 5,00,000/-, let’s say INR 6,00,000/-, then the GST shall be chargeable on the difference between the sale price (6L) – depreciated value (5L). Accordingly, INR 18,000/- tax shall be payable on such sale. No GST shall be payable if the sale price is less than INR 5,00,000/-.”
‘Resale A Service, Hence Attracts GST’: Tax Experts Clarify
“Quite a few resale facilities have come up recently, even for high end cars. Even if the car was bought at a depreciated value by the dealer, the resale of the car is a revenue generator and hence seen as a service. So the new GST rates are referring to the margin on the dealer side who is reselling a used car at a higher price, not an individual to individual sale,” Suranjali Tandon, associate professor, NIPFP.
GST Hike May Impact Affordability, Fear Car Resellers
As the controversy continues, the car dealers have cautioned that the decision may negatively impact the used car sales industry, which is estimated to grow at a CAGR of 21% and reach 8.2 million units by FY25. Cars24 founder Vikram Chopra said in a LinkedIn post, “Used cars are the backbone of mobility for millions of Indians, especially in Tier 2/3 cities and rural areas, where they serve as an affordable way to achieve the dream of car ownership. In a country with single-digit car ownership, policies that impact affordability, like the recent GST hike, can unintentionally slow down this progress.”
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Authors
Pankaj Menon is a fact-checker based out of Delhi who enjoys ‘digital sleuthing’ and calling out misinformation. He has completed his MA in International Relations from Madras University and has worked with organisations like NDTV, Times Now and Deccan Chronicle online in the past.
