GST Council’s decision to raise the Goods and Services Tax on used cars from the current 12% to 18% has the pre-owned car sector worried. On December 21, the GST council announced the decision saying aligns with the council’s broader tax structure for vehicles.
Under the current system, used petrol, LPG, and CNG vehicles with engine capacities of 1200cc or more and lengths exceeding 4000mm are subject to an 18% tax. Similarly, diesel vehicles with engine capacities of 1500cc or more, as well as SUVs with engines exceeding 1500cc, also fall under this tax bracket.
The new ruling expands this 18% tax rate to include vehicles that were previously taxed at 12%, such as older electric vehicles (EVs), when they are resold by businesses.
The increased GST rates are only applicable to businesses involved in the resale of vehicles, not private sellers. The individual seller or buyer is exempt from this increased rate, allowing them to transact at the previous 12% rate.
However, if businesses operating in the sector will be purchasing used cars at an increased rate, it’s likely to impact the end consumers as well, as these companies might pass on the extra bucks spent to their customers.
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“Used cars don’t just help individuals—they fuel economic growth by supporting thousands of small businesses, from dealers to service providers, and contribute to a circular economy by extending the lifecycle of vehicles,”Chopra said.
The Cars24 Founder highlighted the need for making used cars a safer, greener, and more reliable option for consumers and suggested increasing taxes is not the way forward.
“For example, we need clear policies and stronger implementation around responsibly dismantling end-of-life vehicles and incentivizing sustainable practices in the automobile sector,” he added.
It is important here to note that the used-cars market in India is still developing. In FY23, India witnessed a sale of a total of 51 lakh used car worth $34 billion. By FY28, the industry is expected to grow to $73 billion and sell 1.09 crore used cars.
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Industry analysts caution that the tax increase could dampen demand for used vehicles. The current system, which taxes vehicles based on the supplier’s margin, has fueled the growth of the used car market due to its relatively low tax burden. However, a higher GST rate may place additional financial strain on businesses and reduce affordability for buyers.
