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GST Council Raises Tax Rate On Used Small Cars To 18%
The GST Council has decided to increase the tax rate on used small cars, including electric vehicles, from 12% to 18%. This change affects vehicles with engine capacities up to 1200 cc. The tax applies to the profit margin made by registered dealers when selling these cars, not their overall value. Unregistered sellers are exempt from this tax.
Impact on Used Car Market
The used car market has seen significant growth recently, with over 5 million units sold in 2023-24. Certified pre-owned programs by manufacturers like Maruti Suzuki and Mahindra & Mahindra have contributed to this growth. Online platforms like Spinny and Cars24 have also played a role by offering better financing options.
Previously, used cars with engines over 1200 cc were taxed at 18%, while those under were taxed at 12%. The new decision aligns the GST rates for small cars and electric vehicles with larger cars and SUVs. This change could widen the price gap between vehicles sold by organized and unorganized sellers.
Challenges for Entry-Level Cars
The rise in used car sales has impacted entry-level car sales, which have struggled post-pandemic. New entry-level car prices have increased significantly, leading consumers to opt for pre-owned vehicles as a more affordable choice. The average selling price of used cars is now around Rs 4.5-5 lakh, competing directly with new entry-level models.
In the past, the GST on old car sales was as high as 28%, with an additional cess of 1-15%. In 2018, the GST Council reduced this to a range of 12-18% and removed the extra cess. The current increase aims to standardize rates across different vehicle categories.
Registered vs Unregistered Dealers
Registered dealers will feel the impact of this GST hike more than unregistered sellers. A large portion of used car transactions still occurs through unorganized channels that don't register for GST. This tax increase may further differentiate pricing between organized and unorganized sectors in the market.
Original equipment manufacturers have noted that the booming used car market affects new small car sales. These entry-level vehicles were once key drivers of growth in the passenger vehicle industry but have faced challenges since the pandemic began. Overall, this GST rate adjustment reflects changes in consumer preferences and market dynamics within India's automobile sector.
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