Dramatic cut in GST on used car transactions

In a move that will make used cars more affordable, the GST Council announced a reduction in the tax rate on second-hand vehicle transactions in its latest meeting held on January 18, 2017. The tax rate on used car transactions has been reduced to 18 percent for large cars and SUVs, and 12 percent for small vehicles, from 28 percent (for both categories) earlier. The new rates will come into effect from January 25, 2018.

Apex industry body Society of Indian Automobile Manufacturers (SIAM) that had urged the government to reduce the tax under GST welcomed the move and said this will revive the demand for second-hand cars.

Demand for pre-owned vehicles declined following an increase in the applicable GST rate in July 2017. Moreover, dealers in 70 percent of the states had to pay higher taxes post GST, compared to the old VAT regime, according to a study by vehicle pricing guide Indianbluebook.com.

"We had raised the issue (of high GST on used cars) with the government in the pre-budget consultation as well. Although we had asked for an even lower tax rate, we are very happy that our concern has been addressed to a large extent. Vehicle sales in the organised used-car market, which were negatively impacted due to the high GST rate, will now see a revival," Sugato Sen, Deputy Director General, SIAM told Autocar India.

Nagendra Palle, MD & CEO, Mahindra First Choice Wheels said reduction in tax will provide impetus to growing the pre-owned car industry, especially to the organized sector. "Earlier, the effective GST rate was 29 percent to 53 percent (incl cess). Used cars were not considered separately although there are fundamental differences between the new car industry and the used. Going ahead, we see the organized sector growing at a rate of 25-30 percent yearly," Palle told Autocar India. 

The revised tax rate will also benefit the pre-owned luxury and sportscar segment and boost consumer confidence, Jatin Ahuja, founder and managing director, Big Boy Toyz, one of the major players in the pre-owned luxury vehicle segment in India said.

"There is a sense of relief because GST rate of 48 percent (including 20 percent cess) was not practical. In fact, we were forced to put on hold our plans to expand operations to Mumbai. However, with the revision in rates, we expect demand to pick up and we plan to expand our operations to Mumbai, Kolkata and Hyderabad in the next 24 months," Ahuja told Autocar India.

Online automobile marketplace Droom sees an increase in overall market size and adoption for the used vehicles in the near term.

“We are thankful to the government for acknowledging that the tax structure for used vehicles category needs to be different from the new vehicles category," Sandeep Aggarwal, founder & CEO, Droom told Autocar India in response to a query.