A used car dealership is an unusually simple business to account for and an unusually badly accounted one. Simple, because the unit of everything is the car: every rupee that comes in or goes out attaches to a specific vehicle with a registration number. Badly accounted, because that attachment is rarely made at the time - the purchase is in one notebook, the workshop bills in another, the partner’s share in a WhatsApp thread, and the sale invoice in a GST filing that the CA assembled from memory. The result is a dealer who knows the bank balance and does not know the profit.
This guide sets out what a used car dealer’s books need to contain, why, and what the entries for a single car look like from the day it is bought to the day it is sold. It is written for the owner, not the accountant: the point is to know what your CA should be receiving from you, in what shape, and when. It is not tax advice - the thresholds and rules below are stated as they stand at the time of writing and your CA should confirm them for your case.
Key takeaways
- A GST-registered dealer must keep accounts of stock - what came in, what went out, what is on hand - under the CGST Rules, alongside the usual accounts of purchases, sales, tax paid and payable. For a car dealer the stock register is the business.
- Every car needs a landed cost: purchase price plus every rupee spent on it before sale. GST on the margin scheme, profit-per-car and partner settlements all depend on that one number.
- The sale of a used car under the margin scheme is taxed on the margin, not the price - so the invoice and the ledger must show the purchase cost the margin is measured against.
- Records under GST must be kept for 72 months from the due date of the annual return for that year. Keep the car file at least that long.
- A tax audit under the Income-tax Act applies once turnover crosses ₹1 crore - raised to ₹10 crore where cash receipts and cash payments are each 5% or less of the total. A dealer selling twenty cars a month at ₹5 lakh is over ₹1 crore in a quarter.
The books a dealer actually needs
| Record | What it holds | Why it exists |
|---|---|---|
| Stock register (per car) | Registration number, purchase date, seller, price, every expense, status, sale date, buyer, price | Required by the CGST Rules; it is also the only way to know profit per car |
| Purchase register | Every car bought: from whom (registered or unregistered), when, for how much, with the seller’s ID and the agreement | Establishes the purchase cost the margin scheme measures against; proves the seller |
| Sales register and invoices | Every car sold, with the tax invoice showing the margin-scheme treatment and GST on the margin | GST returns; TCS reporting on sales above ₹10 lakh |
| Expense ledger | Reconditioning, transport, RTO, commission, advertising - each tagged to a car or to overhead | Landed cost per car; overhead for break-even |
| Partner and loan ledgers | Each partner’s money in, share agreed, settlements paid; each lender’s advances and repayments | Settlements without disputes; the funding cost on each car |
| Cash and bank books | Every receipt and payment with mode | The 5% cash test for the audit threshold; reconciliation |
One car, start to finish
The worked example below follows a single car through the books. The entries are shown in plain language rather than debit/credit notation; your CA will translate them. The point is what has to be captured, and when.
Illustrative example - the ledger for one car
- · 2020 diesel SUV bought from an individual (unregistered seller) for ₹9,20,000 on 3 June. A partner funds ₹5,00,000 for 40% of net profit on the car.
- · Reconditioning ₹31,000 across three bills; RTO and transfer costs ₹4,200; transport ₹2,500.
- · Sold on 29 July for ₹10,40,000 to an individual. Margin scheme: GST at 18% on the margin. Sale above ₹10 lakh: TCS at 1% collected from the buyer.
- · Illustrative; GST and TCS treatment per the margin-scheme and TCS guides linked below.
Seven entries, each made on the day, each attached to the registration number. From these the stock register, the GST return, the TCS statement, the partner statement and the profit-per-car report are all reports rather than reconstructions. Note that the margin for GST uses the purchase price, while profit uses the full landed cost - two different numbers, both needed.
Two points in that example trip up most dealers. First, the GST margin is measured against the purchase price, not the landed cost - reconditioning does not reduce the taxable margin under the scheme, which is why the purchase price must be recorded exactly and separately. The margin scheme guide covers the cases. Second, the TCS on a sale above ₹10 lakh is the buyer’s tax that you collect and deposit; it is not your income and not your cost, and it needs the buyer’s PAN on the day - see the TCS guide.
Buying from individuals: the paper that proves the purchase
Most used car dealers buy from unregistered individuals, which means no tax invoice from the seller. The purchase still has to be evidenced - it is the number your GST margin and your profit are measured against. For each car keep a signed purchase agreement or delivery note with the seller’s name, address, ID, the registration number, the price and the date; the payment record (bank transfer preferred - it also helps the 5% cash test); and copies of the RC, insurance and the seller’s ID. Keep all of it in the car’s file for the GST retention period.
Retention and the audit threshold
- GST records: every registered person must keep the accounts and records for 72 months from the due date of the annual return for the year they relate to. In practice, keep each car’s file for six years after the financial year it was sold in.
- Income-tax books: maintained under Section 44AA; a tax audit under Section 44AB applies once business turnover exceeds ₹1 crore, or ₹10 crore where aggregate cash receipts and aggregate cash payments are each no more than 5% of the totals. Paying sellers and taking payments by bank keeps a dealer on the right side of that test.
- Turnover for the threshold is the sale value of cars, not the margin - a point dealers on the margin scheme often miss. Twenty cars a month at ₹5 lakh is ₹1 crore of turnover in a month.
What to hand your CA, and when
| When | What | From |
|---|---|---|
| Monthly | Sales register with invoices; purchase register with agreements; expense ledger by car and overhead; TCS collected | GST return and TCS deposit |
| Quarterly | TCS statement; partner settlements; stock register as at quarter end with landed cost | TCS return; stock valuation |
| Yearly | Closing stock with landed cost per car; cash and bank books; partner and loan ledgers; fixed assets | Annual return, income-tax return, audit if applicable |
Doing it without the shoebox
None of the above is hard; all of it is tedious, and tedious things done in March from memory are done wrong. The alternative is to make the car the unit of record from the first day: purchase entered with the seller and the agreement attached, every bill logged against the registration number as it is paid, the partner’s stake on the car, the sale recorded with the buyer’s PAN and the invoice generated with the margin-scheme treatment. That is what the finance ledger, purchase management and partner investments modules in VehicleERP do, and the stock register, GST workings and profit-per-car report fall out of them as exports your CA can use directly.
Related reading
GST on Used Cars for Dealers: The Margin Scheme Explained with Invoice ExamplesTCS on Used Car Sales Above ₹10 Lakh: What Dealers Must Collect and ReportHow to Calculate Profit Per Car at a Used Car Dealership (Formula + Free Calculator)Frequently asked questions
Do I need to maintain a stock register if my CA does my GST?+
Yes. The obligation to keep accounts of stock sits with the registered person - you - and your CA can only file from what you give them. A stock register that is reconstructed at year-end from bank statements is the shoebox with extra steps.
Is reconditioning part of the purchase price for the GST margin?+
No. Under the margin scheme the margin is selling price less purchase price. Reconditioning and other costs reduce your profit, not the taxable margin, which is why the purchase price must be recorded separately and exactly. Confirm the treatment for your case with your CA.
How do I account for a car a partner funded?+
The partner’s money comes in to a partner ledger, not as income; the car is in stock at its full purchase price; when it sells, the partner’s agreed share of net profit is settled and their capital returned, both out of the partner ledger. The partner statement is then a report of that ledger.
Does the ₹10 crore audit threshold apply to me?+
Only if cash receipts and cash payments are each 5% or less of your totals; otherwise the ₹1 crore limit applies. Turnover means the sale value of the cars, not the margin. Your CA will confirm which limit you are under.
What about cars I sell on consignment - do they go in my stock register?+
They are not your stock, so they should be tracked separately and not valued as inventory - but the commission you earn is your income and the agreement with the owner is a record to keep. See the consignment guide for the set-up.
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.
VehicleERP
See your real profit on every vehicle
One system for inventory, sales, finance, and every branch - with AI built in from day one.
Book a Demo30 minutes · Live walkthrough