With the new uniform rate at 18 per cent, businesses operating within the formal sector are now grappling with increased costs and tighter profit margins.

The GST Council’s decision to impose a uniform 18 per cent tax on the sale of old and used vehicles is set to shake up India’s pre-owned car market. Previously, the tax ranged from 5 per cent to 28 per cent based on factors like model and engine type.

While the move aims to streamline taxation and bring in standard rates across segments, industry experts highlight growing distress as this adds to their growing bucket of costs, while straining their finances for organised industry players who already operate on thin profit margins.

The revised structure has sparked confusion among dealers, with many misinterpreting the move as a tax hike. However, industry experts clarify that the government has merely unified the tax rate to 18 per cent per cent across all vehicle categories.

Many transactions under the 12 per cent tax slab went unreported as dealers avoided GST through cash payments. To curb tax evasion and streamline compliance, the government eliminated the dual tax structure.However, players argue that the new uniform rate increases costs for businesses operating within the formal sector.

Unlike unorganised dealers, who often operate outside the GST framework, registered businesses must comply with tax regulations while ensuring competitive pricing. 

Another challenge is the inability to claim input tax credits on refurbishment expenses. Unlike other businesses that can offset their costs against GST, used car dealers must pay the tax on margins without deductions for repairs, servicing, or enhancements.

The gap between organised and unorganised dealers is still wide. Many small sellers remain unregistered, previously avoided taxation through cash transactions.

The GST hike will particularly affect the used-car market for vehicles priced between ₹5 lakh and ₹7 lakh, potentially pushing prices up for consumers. 

Some industry players believe the uniform 18 per cent GST rate is a step toward formalising the sector.

While the move is toward streamlining the industry, experts stress the need for greater awareness among used car dealers.

Source – The Hindu Businessline