Planning To Buy Used EV From Friend Or Private User? Will You Be Taxed With 18% GST? Explained

New Delhi: Will used electric vehicles be expensive now? Well, certainly so as the Goods and Services Tax (GST) Council recently decided to impose an 18 per cent tax on the resale of used electric vehicles (EVs). But there’s not much to worry for private sellers. For instance, if you want to purchase a second-hand EV solely from your friend, acquaintance or anyone who has used the vehicle privately instead of going to a dealer of second hand EVs, you will continue to enjoy an exemption as no GST is applicable.

The tax, which has been raised from 12 to 18% on used EVs, will only apply to businesses involved in the resale of used vehicles and not private sellers. This decision was taken at the 55^th GST Council meeting on Saturday.

But what’s the confusion? Know how the GST would be calculated on margin value

When Finance Minister Nirmala Sitharaman was explaining the tax structure and its application at a press meet following the 55th GST Council meeting, a confusion cropped up. The minister was clarifying that the GST tax would not be on the entire resale amount and only the margin value. At this point, she stated, “When the discussions happened, it was on that margin value… the margin value between purchased product price and resale price, on the margin only this 18 per cent is put.

She tried exemplifying the tax calculation by emphasizing that if a car was bought for Rs 12 lakh and resold for Rs 9 lakh, the price difference of Rs 3 lakh would be taxed. This price difference between the original cost price and resale cost is the margin value. But while explaining, she didn’t specify about the nature of reselling of the vehicles. This led to a confusion and people thought that they would be taxed on reselling a EV despite the resale being a private one and representing a loss.

The increase in GST for second hand EVs has raised alarms in the second-hand vehicle market. Stakeholders worry that higher taxes on dealer margins could drive away potential buyers. Used EVs may turn less appealing compared to new models that enjoy a lower GST rate of 5%.  Experts feared that this tax structure could cut growth in the EV sector, which is crucial for India’s environmental goals.