Ask three used car dealers how GST works on a resale and you will get three answers - "18% on the full price", "12% on the margin", "no GST if I bought from an individual". Only one of those is close, and the rules changed in January 2025. This guide sets out what a registered dealer actually owes, with the rule references, and shows the numbers on a real-looking invoice so you can check your own bills against them.
One caveat before the detail: this is a practical explainer, not tax advice. GST positions depend on your registration, your turnover and how you bought the car. Use it to understand the mechanics, then confirm your own treatment with your chartered accountant.
Key takeaways
- A registered dealer reselling a used car pays GST under the margin scheme (Rule 32(5) of the CGST Rules and Notification 8/2018-Central Tax (Rate)): tax is charged on the margin - selling price minus purchase price - not on the full selling price.
- The rate is a flat 18% on that margin for all used cars, including EVs, since the 55th GST Council decision took effect on 16 January 2025 (earlier, some categories were at 12%).
- If the margin is zero or negative - you sold at or below what you paid - no GST is payable on that car.
- Under the margin scheme you cannot claim input tax credit on the car’s purchase.
- If you claimed depreciation on the car under Section 32 of the Income-tax Act, the margin is calculated against the depreciated value, not the purchase price.
- A sale between two individuals with no dealer involved attracts no GST at all - the scheme is about registered dealers.
Why used cars are taxed on the margin
A used car has already borne tax once, when it was new. If a dealer had to charge GST on the full resale price, the same car would be taxed in full every time it changed hands, and dealers would be undercut by private sales that carry no GST. The margin scheme fixes that: the dealer is taxed only on the value they add - the difference between what they paid and what they sold for. It is the same principle as second-hand goods schemes in many countries, and in India it is set out in Rule 32(5) of the CGST Rules, with the used-vehicle rates in Notification 8/2018-Central Tax (Rate).
The rules, line by line
| Question | Rule | What it means on the invoice |
|---|---|---|
| What is taxed? | Rule 32(5): value of supply = selling price − purchase price | GST is calculated on the margin, not the sale price |
| At what rate? | 18% on all used cars since 16 Jan 2025 (55th GST Council) | Margin × 18% |
| Sold at a loss? | Rule 32(5): negative margin is ignored | GST = nil for that car |
| Input tax credit? | Not available under the margin scheme | Do not claim ITC on the purchase |
| Claimed depreciation? | Margin = selling price − depreciated value (Section 32) | Use the written-down value as the cost basis |
| Bought from an unregistered person? | Purchase carries no GST; the margin scheme still applies on resale | No change to the calculation |
| Reconditioning costs? | Not part of the purchase price for the margin calculation | They reduce your profit, not your taxable margin |
Worked example 1: a normal resale
Illustrative example - a dealer buys from an individual and resells
- · Purchase price paid to the individual seller: ₹4,20,000 (no GST on the purchase).
- · Reconditioning and expenses: ₹25,000 (affect profit, not the GST margin).
- · Selling price to the buyer: ₹4,80,000, shown as a margin-scheme sale on the bill.
Had the dealer charged 18% on the full ₹4,80,000 by mistake, the GST line would read ₹86,400 - and the deal would be uncompetitive against every private seller in town.
Worked example 2: a loss-making sale
Illustrative example - the car sells below purchase price
- · Purchase price: ₹5,10,000.
- · The car sits for four months and finally sells for ₹4,95,000.
No GST is due, but the loss is real, and the negative margin on one car cannot be set off against the positive margin on another - each car is its own supply.
Worked example 3: depreciation was claimed
Illustrative example - a car the business used before selling
- · A dealer bought a car for ₹8,00,000, used it as a business vehicle and claimed depreciation under Section 32.
- · Written-down value on the date of sale: ₹6,40,000.
- · Sold for ₹6,90,000.
Using the original ₹8,00,000 purchase price would have produced a negative margin and nil GST - which is exactly the case the depreciation rule exists to prevent.
What the bill should show
A margin-scheme invoice looks different from a normal GST tax invoice, and buyers - especially business buyers - sometimes ask why. The practical points most dealers get wrong:
- The bill should make clear that the supply is under the margin scheme so the buyer does not expect to claim input tax credit on it.
- The GST amount is 18% of the margin, which will look small against the sale price - that is correct, not a mistake.
- When the margin is negative, the bill shows the sale with no GST line, not a zero-rated or exempt supply.
- Keep the purchase record (who you bought from, the price, the date) attached to the car: it is the evidence for the margin you declared.
- Reconditioning bills belong on the car for your profit calculation, but do not reduce the taxable margin - the margin is strictly sale price minus purchase price (or depreciated value).
Common mistakes we see on dealer invoices
| Mistake | What goes wrong | Fix |
|---|---|---|
| Charging 18% on the full price | Overcharges the buyer by tens of thousands and makes the dealer uncompetitive | Calculate on the margin only |
| Netting losses against profits across cars | Understates GST on the profitable cars | Each car is a separate supply; a negative margin is simply nil |
| Reducing the margin by reconditioning cost | Understates GST | Reconditioning reduces profit, not the taxable margin |
| Claiming ITC on the purchase and also using the margin scheme | Not permitted under the scheme | Choose the margin scheme and forgo ITC |
| No record of the purchase price | Cannot substantiate the margin in an assessment | Keep the purchase entry and seller details on the car |
| Still using 12% for some cars | Under-collects since 16 January 2025 | Flat 18% on the margin for all used cars |
How this fits with e-invoicing and TCS
Two other compliance rules sit alongside the margin scheme. If your aggregate turnover crosses ₹5 crore, e-invoicing applies to your B2B invoices - we covered the mechanics in the 2026 trends piece. And income-tax TCS at 1% applies when a motor vehicle is sold for more than ₹10 lakh - a separate rule from GST, covered in TCS on used car sales above ₹10 lakh.
Recording GST per car, not per month
The margin scheme is calculated car by car, so the record has to be too. In VehicleERP the purchase price sits on the car, the sale records the selling price and the GST treatment, and Vehicle GST Payment is its own ledger entry - so what you charged and what you paid line up per vehicle, and your CA files from clean data. See GST billing for car dealers and the finance ledger.
Related reading
How to Calculate Profit Per Car at a Used Car Dealership (Formula + Free Calculator)TCS on Used Car Sales Above ₹10 Lakh: What Dealers Must Collect and ReportFrequently asked questions
Is GST on used cars 12% or 18%?+
18% on the dealer’s margin for all used cars, including electric vehicles, since 16 January 2025 following the 55th GST Council decision. Before that some categories were at 12%.
Do I pay GST if I sell a used car at a loss?+
No. Under Rule 32(5) a negative margin is ignored, so no GST is payable on that car. You cannot, however, set that loss off against the margin on another car.
Can I claim input tax credit on the cars I buy for resale?+
Not if you are using the margin scheme. The scheme taxes only the margin precisely because no credit is taken on the purchase.
I bought the car from a private individual. Does the margin scheme still apply?+
Yes. The purchase carries no GST because the seller was unregistered, and your resale is taxed on the margin between that purchase price and your selling price.
Does GST apply if I only broker a car and never buy it?+
The margin scheme is for dealers who buy and resell. On a brokerage or consignment deal your income is a commission for a service, which has its own GST treatment - see our guide to consignment and brokerage deals and confirm with your CA.
Does reconditioning cost reduce my GST?+
No. The taxable margin is selling price minus purchase price (or depreciated value). Reconditioning reduces your profit on the car, not the GST margin.
Sources
- ClearTax - "GST on Sale of Old and Used Cars / Refurbished Cars" (Rule 32(5), Notification 8/2018, 18% from 16 January 2025)
- Bajaj Finance - "GST on Sale of Old and Used Cars: New 18% GST Rate"
- Busy Accounting - "New GST on Used Cars: 12% / 18%"
- IndiaFilings - "GST on Sale of Old and Used Cars"
- Vakilsearch - "GST Margin Scheme on Second-Hand and Used Goods in India"
Written by
Chintan PoriyaCo-Founder & CEO, BytezTech
Chintan Poriya is the Co-Founder and CEO of BytezTech, the company behind VehicleERP. Before building the platform, he spent time close to used-vehicle dealerships and kept seeing the same pattern: stock tracked across Excel sheets, updates passed around on WhatsApp, and real profit per vehicle only known once the books closed at month-end. That gap - between how dealerships actually run and the patchwork of tools they run on - is what led him to start VehicleERP: a single operating system built around how a dealership buys, prices, sells, and grows. He now leads product and business strategy for VehicleERP, working directly with dealership owners to shape the platform around real operations rather than generic software templates.
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