Understanding GST on Used Vehicle Sales in India: Rates, Rules, and HSN Code

Buying or Selling a Used Vehicle in 2025? Here’s What You Need to Know About GST

If you’re planning to buy or sell a pre-owned car—or even an electric scooter—this year, there’s one thing you don’t want to overlook: how GST applies to used vehicles in 2025. The rules have changed, and understanding them is key—especially for dealers and small business owners.

What’s New: Flat 18% GST on All Used Vehicles

From January 16, 2025, the GST Council has fixed an 18% tax rate on the sale of old and used vehicles—yes, this includes electric vehicles (EVs) too. Whether it’s a petrol hatchback, a luxury SUV, or an e-bike, all used vehicle sales by registered dealers now attract a standard 18% GST, regardless of engine size or fuel type.

How Is GST Calculated? The Margin Scheme Explained

Now here’s where it gets practical—GST isn’t charged on the entire selling price. Instead, it’s only applied to the dealer’s profit margin.

Here’s how it works:

GST is 18% of (Selling Price – Purchase Price)
If the dealer makes a loss? No GST applies
No Input Tax Credit (ITC) is allowed under this scheme
The invoice must clearly state that the margin scheme is being used, as per Rule 32(5) of the CGST Rules

Example:

Particulars	Amount (₹)
Purchase Price	5,00,000
Selling Price	5,80,000
Dealer's Margin	80,000
GST @ 18% on Margin	₹14,400

Special Situations You Should Know About

Let’s look at three common exceptions where GST treatment changes:

1. Sale Between Private Individuals (Non-Dealers)

If an unregistered individual sells their car to another individual, GST doesn’t apply at all. This includes personal vehicle sales done via classifieds or online platforms.

2. Dealer Claimed ITC at Purchase

If a dealer claimed Input Tax Credit when purchasing the vehicle—perhaps because it was used in business—then the margin scheme cannot be used. In such cases:

GST is charged on the full selling price, not just the margin
The applicable rate is typically 28% + cess (depending on vehicle type)

3. Capital Goods or Business Vehicles

When the vehicle was used as a business asset and depreciation or ITC was claimed, the sale must comply with Section 18(6) of the CGST Act. GST in this case is calculated on the higher of:

The actual sale price
The ITC originally claimed (after depreciation adjustments, if any)

It’s technical—and best handled with a tax advisor’s help.

🏷HSN Code for Used Vehicles: 8703

Most used personal vehicles fall under HSN code 8703, which covers cars and vehicles "principally designed for the transport of persons".

Even though sub-codes exist (based on engine size or fuel type), under the margin scheme, the GST rate remains 18% across the board.

Quick Summary Table: GST on Used Vehicle Sales (2025)

Sale Scenario	GST Applies?	Tax Base	Notes
Dealer (no ITC claimed)	Yes, @18%	Margin only (Sale – Purchase)	Must use margin scheme, no ITC
Dealer (ITC claimed or capital asset)	Yes	Sale value or reduced ITC value	Margin scheme not allowed
Individual to individual	No	Not applicable	GST exempt
Dealer sells at a loss	No	Margin = ₹0	No tax due under margin scheme

Key Takeaways for 2025

GST is only on profit if you’re a registered dealer not claiming ITC
If you claim ITC or sell a capital asset, different rules kick in—likely full GST
Private person-to-person sales remain tax-free
The invoice must mention the margin scheme—or it’s not valid
Keep detailed records of every purchase and sale—this isn’t optional anymore

Practical Advice for Dealers

If you run a used vehicle dealership or operate in the resale business, here are some real-world tips:

Always maintain proper purchase invoices—you’ll need them to prove margin
Clearly mention “margin scheme under Rule 32(5)” on every GST invoice
If you’re unsure whether ITC or depreciation was claimed on a vehicle, check your books before invoicing
For older capital goods, review Section 18(6) carefully or talk to your tax advisor