The GST Council has approved raising the Goods and Services Tax (GST) rate on the sale of old and used vehicles from 12% to 18%. The revised rate applies to vehicles sold with a margin and purchased by businesses claiming depreciation.
However, individuals selling or buying old vehicles will continue to be taxed at the lower 12% rate.
This decision aligns with the council’s broader tax structure for vehicles. Under the current system, used petrol, LPG, and CNG vehicles with an engine capacity of 1200cc or more and a length exceeding 4000mm are already taxed at 18%.
The same applies to diesel vehicles with an engine capacity of 1500cc or more and SUVs with engine capacities exceeding 1500cc. The new ruling brings vehicles previously taxed at 12%, including old electric vehicles (EVs), into the 18% bracket when resold by businesses.
The impact on the EV resale market is particularly notable. While new EVs enjoy a 5% GST rate to encourage adoption, the reclassification under the 18% slab for used EVs could reduce their appeal in the second-hand market.
Input parts and services for repairing and maintaining second-hand vehicles already attract 18% GST, and the proposed hike could further increase operational costs for businesses in this sector.
Industry analysts warn that this tax increase may slow demand for used vehicles. The relatively low tax incidence under the current system—where vehicles are taxed based on the supplier’s margin—has driven the growth of the used car market. A higher GST rate could potentially burden businesses and impact affordability for buyers.
For now, individuals remain insulated from the 18% rate, ensuring continued affordability in personal transactions. However, businesses relying on the depreciation benefit will need to adapt to the higher tax incidence, particularly for vehicles resold after repair or maintenance.
