How to Calculate GST Payable on Old Car

When buying or selling an old car in India, most people focus on the vehicle’s condition, mileage, and price — but often overlook the tax implications. One of the key taxes that may apply is the Goods and Services Tax (GST). Understanding whether GST is payable, the applicable rate, and the correct calculation method is crucial, especially for businesses and registered dealers. Even a small miscalculation can result in overpayment of tax or penalties for non-compliance.

This guide breaks down GST rules for old cars, explains the margin scheme, provides step-by-step calculation examples, and highlights situations where GST is exempt.

1. GST on Old Car – Basic Understanding

When GST was introduced in 2017, it replaced multiple indirect taxes like VAT, excise duty, and service tax. This meant that every sale of goods, including motor vehicles, came under GST’s ambit. However, applying full GST on old cars would have meant double taxation — once when the car was new and again when resold.

To address this, the GST Council issued special provisions for used vehicles. The key principle is that GST is levied only on the margin (profit) earned by a registered dealer during resale, provided the dealer did not claim Input Tax Credit (ITC) when purchasing the car.

For example, if a car was bought for ₹5 lakh and sold for ₹5.5 lakh, GST is calculated only on ₹50,000 (the profit margin) and not on ₹5.5 lakh. This reduces the tax burden for both dealers and buyers.

2. GST Rates on Old Cars

Initially, old cars attracted the same high GST rates as new cars — 28% plus compensation cess (up to 22%), making resale costly. Recognizing the issue, the government reduced rates via Notification No. 8/2018 – Central Tax (Rate) dated 25 January 2018.

The rates now depend on engine capacity and vehicle size:

Vehicle Type	Engine Capacity	GST Rate
Small Cars (Petrol ≤ 1200 cc or Diesel ≤ 1500 cc)	–	12%
Larger Cars (Petrol > 1200 cc or Diesel > 1500 cc)	–	18%
SUVs (Length > 4000 mm & Engine > 1500 cc)	–	18%

The Compensation Cess, which could range from 1% to 22% earlier, no longer applies to used cars. This drastically reduced the tax burden — for example, the GST on a ₹10 lakh used SUV dropped from over ₹3 lakh to less than ₹2 lakh.

3. How GST is Calculated on an Old Car

The calculation method depends on who is selling the car:

Registered GST dealer → Must use the margin scheme and pay GST on profit only.
Private individual → No GST liability unless selling as a business activity.
Unregistered seller → No GST, but if sold to a dealer, the dealer will apply GST when reselling.

This distinction is important because if GST is wrongly applied on the full selling price instead of the margin, it will unnecessarily increase the buyer’s cost.

(A) Margin Scheme for Registered Dealers

The margin scheme is the most common method for calculating GST on used cars sold by registered dealers. Under this scheme:

GST is payable only on the margin (Selling Price – Purchase Price).
If there is no profit (margin is zero or negative), GST is not payable.
ITC should not have been claimed on the purchase of the car.

Formula:

GST Payable = (Selling Price – Purchase Price) × GST Rate

Example 1:

Purchase Price: ₹6,00,000
Selling Price: ₹7,00,000
Margin = ₹1,00,000
GST Rate: 18% (Large Diesel Car)

GST = ₹1,00,000 × 18% = ₹18,000

In this case, the dealer collects ₹18,000 as GST from the buyer and remits it to the government.

Note: If the dealer sells the car for ₹5,80,000 instead of ₹7,00,000, the margin would be negative (loss), and no GST is charged.

(B) Private Individual Selling to Dealer

When a private person sells their old car to a GST-registered dealer:

The individual does not charge GST.
The dealer records the purchase price and later charges GST on the margin when reselling.

For example, if Mr. Sharma sells his hatchback to a dealer for ₹4,00,000, he receives the full amount without any GST deduction. The dealer later resells it for ₹4,50,000, paying GST on the ₹50,000 margin.

(C) Sale Between Two Individuals

When an individual sells a car directly to another individual (e.g., through OLX or personal contact):

No GST is applicable.
Only RTO transfer charges, road tax (if applicable), and insurance transfer fees are payable.

However, if the seller frequently sells multiple vehicles, tax authorities may consider it a business activity, in which case GST provisions might apply.

4. Exemption from GST on Old Cars

You don’t have to pay GST in the following cases:

Sale by an unregistered person → Example: A salaried employee selling their car to another person.
Selling before GST registration → If a business sells a car before obtaining GST registration, GST is not applicable.
Loss-making resale → If the selling price is equal to or lower than the purchase price, margin = 0, so GST is not payable.

These exemptions ensure that casual sellers or loss-making transactions are not burdened with additional taxes.

5. Step-by-Step Method to Calculate GST on an Old Car (Dealer Sale)

Here’s a practical method to ensure you calculate GST correctly:

Identify the Car Category → Check the car’s engine capacity and length to know whether the GST rate is 12% or 18%.
Find Purchase Price & Selling Price → Keep the purchase invoice ready for proof.
Calculate Margin → Selling Price – Purchase Price.
Check GST Rate → Use the correct rate from the table above.
Apply Formula → GST Payable = Margin × GST Rate.
Issue Invoice → Show the margin and GST amount separately in the invoice.
File GST Return → Report under outward supplies in GSTR-1 using the margin scheme.

6. Practical Example for Blog Readers

Scenario:
A GST-registered dealer buys a petrol sedan (engine 1400 cc) for ₹5,50,000 and sells it for ₹6,20,000.

Step 1: Car Category → Large Car (Petrol > 1200 cc) → GST rate = 18%
Step 2: Margin = ₹6,20,000 – ₹5,50,000 = ₹70,000
Step 3: GST = ₹70,000 × 18% = ₹12,600

Result: Dealer collects ₹12,600 GST from the buyer and remits it to the government. The buyer’s invoice will clearly show the selling price, margin, GST rate, and GST amount.

7. Conclusion

Calculating GST payable on an old car is straightforward once you know the margin scheme rules and applicable rates. The key is to determine who is selling, whether GST registration applies, and if a profit margin exists.

For individuals, there’s usually no GST liability. For dealers, correctly applying the margin scheme ensures compliance and avoids overcharging buyers. Always keep purchase and sale documents, vehicle details, and invoices handy for smooth GST reporting.

By following these steps, you can make your car sale both tax-compliant and cost-effective.

How to Calculate GST Payable on Old Car