The continuously growing Indian used automobile market provides new car buyers with reasonable options. Understand tax avoidance, especially about GST on second-hand cars, if you want to buy or sell one. The following article will discuss the 2025 used car GST rate and its impacts on both buyers and sellers.

Understanding GST on Indian Used Automobiles

In 2017, the Goods and Services Tax was introduced to simplify taxes for the automotive industry and other enterprises. Several factors affect the GST rate on used cars, including engine capacity, energy type, and whether the seller is a licensed dealer.

GST Rate for Used Cars in 2025

The following is the distribution of the GST rate on used or vintage cars:

1. For cars that use petrol or diesel (up to 1200cc for petrol and 1500cc for diesel)

• 12% GST Rate

• No Applicable Cess

2. For cars with engines larger than 1200cc for fuel and 1500cc for diesel

• 18% GST Rate

• No Applicable Cess

3. For Electric Vehicles( EVs)

• GST Rate 5%

• Applicable Cess Nil

Earlier, the GST rate on used cars was advanced, but in 2018, the government revised the structure to boost second-hand car requests. As of 2025, the below rates remain applicable unless new amendments are introduced.

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Who Pays GST on Second-Hand Cars?

1. Registered Dealers

However, GST on second-hand cars is charged based on the car’s order if a registered dealer sells a second-hand car. The dealer can use the Margin Scheme, where GST is only levied on the profit periphery rather than the total car value.

2. Individualities Dealing with individualities

Nonetheless, GST doesn't apply if an individual sells their car to another individual( not through a dealership). This is because GST is only applicable to businesses involved in trading goods or services.

3. Online Platforms & Used Car Commerce

Popular platforms like OLX, Cars24, and Spinny ease used car transactions. However, GST is applicable if a registered dealer sells via these platforms. Still, in peer-to-peer deals, GST isn't charged.

GST computation on Used Cars( Margin Scheme)

The Margin Scheme benefited registered dealers as it reduced tax liability. Here's how it works:

Formula: GST is levied on the profit margin (trade Price – Purchase Price) rather than the total selling price. (GST = Profit Margin × Applicable GST Rate )

Example:

• A person buys a used car for ₹ 4,00,000 and sells it for ₹4,50,000.

• Profit periphery = ₹ 50,000.

• GST on this periphery at 12( for a small auto) = ₹ 6,000.

• The total invoice amount would be ₹₹4,50,000 + ₹6,000 = ₹4,56,000.

• If the dealer incurs a loss( i.e., the selling price is lower than the purchase price), no GST is applicable.

Input Tax Credit( ITC) on Used Cars

Input Tax Credit( ITC) allows businesses to neutralise GST paid on purchases against their GST liability. However, for used cars, ITC cannot be claimed unless:

• The car is used for additional force( i.e., a car dealer).

• The car is used for furnishing taxable services( e.g., hack drivers, driving seminars).

Impact of GST on Used Car Buyers

If you’re purchasing a used car in 2025, here’s what GST means for you:

• If you’re buying a used car in 2025. However, you don’t pay GST if you buy from an individual dealer.

• Nevertheless, the applicable used car GST rate is included in the price if you buy from a registered dealer.

• Electric vehicles attract the smallest GST( 5), making them a cost-effective option.

Conclusion

The GST on second-hand cars in 2025 continues to support the pre-owned vehicle request by assuring lower tax rates than before. Whether you're a buyer or dealer, understanding the used car GST rate can help you make informed opinions and avoid gratuitous duty burdens.

However, check whether the dealer follows the Margin Scheme to save on GST costs If you’re planning to buy a habituated car. Likewise, merchandisers should be apprehensive of whether GST applies to their deals to avoid compliance issues.

FAQs

Q1. Is GST applicable when buying a used car from an individual?

No, GST isn't applicable if an individual sells a used car.

Q2. What will be the GST rate for second-hand cars in 2025?

The GST rate for second-hand cars is 12% for small cars, 18% for bigger cars, and 5% for electric vehicles.

Q3. Can a dealer claim ITC on used auto purchases?

No, dealers generally cannot claim ITC on used cars unless the vehicle is used for taxable business purposes.

By staying informed about GST on second-hand cars, you can navigate the pre-owned car market dashingly in 2025!

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